Strategy and Operations Managment - Term Paper Example

«STRATEGY AND OPERATIONS MANAGEMENT» Table of Contents «STRATEGY AND OPERATIONS MANAGEMENT» 1 INTRODUCTION TO COMPANY 2 GENERIC STRATEGY 3 VALUE CHAIN ANALYSIS OF BUSINESS 5 FINDINGS FROM VALUE CHAIN ANALYSIS AND THEORETICAL IMPLICATIONS 11 CONCLUSION 13 RECOMMENDATIONS 15 BIBLIOGRAPHY 16 INTRODUCTION TO COMPANY The company that has been selected for operations management is Subway. Subway is one of the world’s largest sandwiches brand. The company was founded in 1965 by a 17-years old high school graduate Fred DeLuca. Today Subway is one of the largest Franchise chains worldwide and the company has total 33611 franchises in 92 countries (Subway, 2010). Subway is a privately held company and its stocks are not traded on any stock exchange and each franchise of the company is individually owned and operated worldwide. The aim of the company is to become number one Quick Service Restaurant (QSR) while maintaining the image of the company as a fresh and great-taste provider (Subway, 2010). In order to achieve this aim, the company is offering the same core menu throughout the world however, based on the differences in local taste of Europe, Asia and North America, local products are also being offered. Although company is continuously expanding, still various complaints are heard about the operations of the company and one of the primary reasons is the independent franchise operations. Therefore, in this report the operations management at Subway will be discussed and to study the value added process of the company four key areas will be discussed including customer services at Subway, new product development process, layout strategy at Subway and procurement of raw materials. Based on the analysis of four key areas, the loopholes will be identified and recommendations will be made. GENERIC STRATEGY Based on Porter’s Generic Strategies, Subway generic strategy is “Differentiation”. Therefore, Subways falls in the second quadrant of the generic strategies. The reason for placing subway in the second quadrant is that Subway is pursuing High cost strategy with a narrow focus. The competitive strategies of Subway is a differentiated strategy because the products of Subway are perceived as valuable and high quality products therefore, this perception of the company has allowed it to charge premium prices from the customers. A customer is willing to pay high prices for a Subway sandwich as compared to the sandwiches of various other brands. The benefit of charging premium prices from the customers is that the company is significantly investing in research and development so that its core value of innovative and healthy products can be offered. However, to offer the differentiation strategy, Subway has built strong internal strengths including the access to research and development, reputation for quality and its core values. As long as focus strategy of the company is considered, it is concentrating on narrow segments rather than broad segments. Actually Subway is offering sandwiches to the people who are diet conscious and health conscious therefore, the company is pursuing a narrow focused strategy and enjoying customer loyalty and to some extent discourages the firm to compete directly. The broad range of Subway healthy products are being offered to the narrow markets and company knows the market segments very well. Therefore, Subway has a high cost and narrow focus strategy. The generic strategies of Subway have helped it to manage the five industry forces defined by the Porter. Industry Forces Generic strategies of Subway Entry Barriers Although the entry barriers in quick service industry are very less which makes this industry very attractive for the new investors however, by keeping the customer loyalty through differentiation and narrow focused strategy, the company has been able to discourage potential entrants Buyer Power The differentiation strategy of the company has allowed to keep less negotiations with large buyers Supplier Power Through charging more than average market prices for its products, Subway is better able to pass on prices increases to its loyal customers Threat of Substitutes Although very few companies are operating in the healthy food sector however, the quick service companies also appear to be the major competitors of the Subway. To reduce threats of substitutes the differentiation strategy of Subway offers unique product taste and attributes Rivalry Subway has focused on brand loyalty to keep its rivalry low VALUE CHAIN ANALYSIS OF BUSINESS Supply Chain Process The raw material that is used by Subway in its sandwiches can be categorised into four major categories including frozen meat, bread, vegetables and sausages. All kinds of meats used in the sandwiches is received in frozen form and the size of each package is same and the ratio of usage is kept in mind while making the packages. For example, if a customer asks for 6 inches sandwich then one packet of frozen meat is used and if the customer orders 12 inches sandwich then two packets of meat are used. There are various major suppliers of Subway worldwide for example, in most of the Asian countries; Al-Aizan based in Dubai supplies the raw material. The frozen meat lasts longer however; the meat supply is received after every 25 days on average. The following diagram shows the process of raw material delivery from suppliers to the outlet of Subway. Bread of Subway is another factor which contributes the quality of Subway sandwich. To keep the sandwich fresh, the bread is purchased on daily basis. All Subway outlets only buy the doe and the breads are baked at the outlets of the company. To keep the freshness, the vegetables are purchased on daily basis such as capsicum, tomato etc. The purchase of the vegetables has not been shown because acquisition of vegetable is a very simple process. Moreover, the sausages and sauces are also purchased from the local market superstores. New Product Development As evident from the generic strategies that Subway is pursuing a generic strategy therefore, it is important to evaluate the new product development process at Subway. Subway keeps on introducing new products such as new flavour of breads to offer new taste to its loyal customers. The company ensures that the products offered by the company are in harmony with its differentiation strategy. For example, in 2002 when Subway offered low-fat offering on its three new sandwiches (less than six grams of fats), the company was claiming that the new low-flat sandwiches would become very popular among the health conscious people (Restaurant Business, 2002). Today, low fat sandwiches of the company are very popular among the health conscious people. Subway has been also introducing new tastes in sandwiches such as Red Wine Vinaigrette Club, Sweet Onion Chicken Teriyaki etc. The new products of Subway are not entirely new but they are the extensions of the existing products of the company. If the Subway fully focuses on its differentiation narrow strategy then the company should introduce the new products very frequently because imitation is very high in the quick service industry. Even after pursuing a differentiation strategy, Subway is not very active in new products development. Customers of Subway can hardly remember the last time when the new product was launched in the market. Through the website of the company, new product ideas can be sent to the company however, still company is not very active in product innovation and product development. It shows that product development of the team is not very active. The flow chart of the product idea has been shown below. Customer Services The customer service appears to be one of the major stages at which the interaction with the customers can influence the attitude of the customer. Because of the low degree of customisation, the feedback is generally low in type of service and because of low degree of labour the innovation on technology can contribute a lot in achieving the differentiation. Therefore, to avoid any loophole in the customer service process, the management should check the quality of the products and take the customers’ feedback. Degree of Customisation Low High Degree of Labour High Low The service blueprint shows that all the stages where the customers’ interaction is potential, the service can impact the behaviour of the customers. Customer Service Blueprint LEVEL 1(customer may in control) Yes No Warm greetings And gets menu ……………………………………………………………………………………………………… LEVEL 2 Yes (Interaction) No ……………………………………………………………………………………………………… LEVEL 3 Services not visible to customers Layout Strategy To improve the efficiency of the operations, Layout strategy of the company plays an important role. The products of Subway are served at the outlet and the company is also offering “take-away and home delivery services”. Since the layout strategy of Subway may vary from franchise to franchise therefore, I have chosen a Subway franchise and evaluated its layout. The layout strategy of Subway does not appear to be compatible with the claimed differentiation strategy of the company. The company is highly focusing to improve the quality of its products however, to pursue the differentiation strategy, Subway has to focus on its atmosphere where the customers come for entertainment. According to the management of the company, most of the franchises of the company are very small and cosy. Moreover, Subway’s franchises are not focusing on the ambience and decor. FINDINGS FROM VALUE CHAIN ANALYSIS AND THEORETICAL IMPLICATIONS Supply Chain When the licences of the Subway to franchisors are issued, the location of the outlet is given special consideration. The major consideration for the company while issuing the licence is the access to raw material, location of the outlet, car park availability etc. To keep the quality of products high company is pursuing total quality management practices and just-in-time inventory is an important component of inventory management at Subway. It is also evident from the daily purchase of doe and fresh vegetables. From the supply chain operations of the company, it has been analysed that there some benefits and problems in the supply chain management of the company. As Subway’s franchises are receiving the raw material from various suppliers worldwide therefore, taste of Subway is not very consistent. Second, company is acquiring breads on regular basis and bake it in the outlets which ensure the freshness of the bread. Third, meat is received in frozen form which increases the use of meat for a significant period of time and reduces frequent orders. However, less number of orders per month results in deviation from just-in-time inventory concept. Customer services The customer interaction is significantly higher in the case of Subway therefore; both the psychological and physical factors can impact the behaviour of the customers. Subway aims to become the leader in the quick service industry and it is also evident from the quick services offered to the customers at Subway outlets. According to management of Subway the total time required to serve one customer is two minutes. Queuing system at outlets of the company is much organised. The findings of customer services operations of Subway show that various loopholes are there in the services of the company. First, the employees of the company are not welcoming and do not focus on customer relationship management aspect. Second, franchisors are more interested in opening the outlets in the commercial locations, which sometimes result in poor location selection. New Product Development It has been analysed that new product development strategy at Subway is not compatible with the differentiation strategy of the company. Therefore, it can threaten the market shares of the company. Layout The company should also focus on the layout strategy. Since the franchisors are more interested in obtaining the franchise licence of the company therefore, it can be another major reason because of which layout strategies are not carefully developed by the runners of franchises. CONCLUSION The generic strategy of Subway is high cost and narrow focus strategy which means that overall generic strategy of the company is differentiated strategy. Four processes of the company have been analysed including supply chain operations (raw material acquisition), customer services, layout strategy and new product development. From the findings it has been analysed that Subway has been able to pursue differentiation strategy by offering high quality and healthy products. However, managing just-in-time inventory is not possible for the company as meat is delivered by few selected international suppliers. The company needs to focus on improving customer services because the increasing number of franchises is resulting in lower quality services. Similarly, company is not very active in new product development which reduces the ability of Subway to completely focus on differentiation strategy and there are threats of product imitation. Moreover, the layout strategy is also weak which is also contributing to the poor operations of the company and consideration should be given in improving the layout strategy. Therefore, the major reason because of which Subway has been able to gain recognition is the unique product of the company however, if the company aims to expand its market shares and to become the leading quick service provider then the company should also focus on managing its operations. RECOMMENDATIONS There are some of the recommendations for Subway for the improvement of its operations. Like vegetables and breads, Subway should allocate the local suppliers for meat to its franchisors. It will ensure the just-in-time inventory however, to avoid quality concerns, the suppliers can be finalised by the company to all franchisors. More emphasis should be given on customer services such as staff should be better trained and guidelines should be set for the franchisors while hiring the staff. To improve the layout strategy, the company should seriously consider the size, area, space, and location etc of the outlet. Moreover, the layout strategy should be standardised and communicated to all the franchisors of the company. To completely pursue the differentiation strategy, a great focus should be given towards product development. Otherwise, high imitation and increasing competition can threaten the market share of Subway. To standardise the operations of Subway, a proper layout strategy should be developed. The company should communicate the layout strategy to the owner of the franchise at the time of opening an outlet and a continuous appraisal should be done on regular basis. BIBLIOGRAPHY Mahadevan, B. (2010). Operations Management: Theory and Practice. India: Pearson Education. Restaurant Business . (2002, May 14). SUBWAYS EXTENDS LOW-FAT SANDWICH LINE. Retrieved October 17, 2010, from http://www.allbusiness.com/retail-trade/eating-drinking-places/4268620-1.html Subway. (2010). FAQs. Retrieved October 16, 2010, from http://www.subway.com/subwayroot/AboutSubway/subwayFaqs.aspx#1 Read More