Case Study : Ryanair and Flextronics
The two most important attributes of any operations strategy are first that it aligns operations activities with the strategy of the whole organization, and second that it gives clear guidance. Here are two examples of very different businesses and very different strategies which nonetheless meet both criteria.
Ryanair is today Europe’s largest low-cost airline (LCAs) and whatever else can be said about its strategy, it does not suffer from any lack of clarity. It has grown by offering low-cost basic services and has devised an operations strategy which is in line with its market position. The efficiency of the airline’s operations supports its low-cost market position. Turnaround time at airports is kept to a minimum. This is achieved partly because there are no meals to be loaded onto the aircraft and partly through improved employee productivity. All the aircraft in the fleet are identical, giving savings through standardization of parts, maintenance and servicing. It also means large orders to a single aircraft supplier and therefore the opportunity to negotiate prices down. Also, because the company often uses secondary airports, landing and service fees are much lower. Finally, the cost of selling its services is reduced where possible.
Ryanair has developed its own low-cost internet booking service. In addition, the day-to-day experiences of the company’s operations managers can also modify and refine these strategic decisions. For example, Ryanair changed its baggage handling contractors at Stansted Airport in the UK after problems with misdirecting customers’ luggage. The company’s policy on customer service is also clear. ‘We patterned Ryanair after Southwest Airlines, the most consistently profitable airline in the US,’ says Michael O’Leary, Ryanair’s Chief Executive. ‘Southwest founder Herb Kelleher created a formula for success that works by flying only one type of airplane – the 737, using smaller airports, providing no-frills service on-board, selling tickets directly to customers and offering passengers the lowest fares in the market. We have adapted his model for our marketplace and are now setting the low-fare standard for Europe. Our customer service,’ says O’Leary, ‘is about the most well defined in the world. We guarantee to give you the lowest air fare. You get a safe flight. You get a normally on-time flight. That’s the package. We don’t, and won’t, give you anything more. Are we going to say sorry for our lack of customer service? Absolutely not. If a plane is cancelled, will we put you up in a hotel overnight? Absolutely not. If a plane is delayed, will we give you a voucher for a restaurant? Absolutely not.’
Flextronics is a global company based in Singapore that lies behind such well-known brand names as Nokia and Dell, who are increasingly using Electronic Manufacturing Services (EMS) companies, such as Flextronics, which specialize in providing the outsourced design, engineering, manufacturing and logistics operations for the big brand names. It is amongst the biggest of those EMS suppliers that offer the broadest worldwide capabilities, from design to end-to-end vertically integrated global supply chain services. Flextronics’ operations strategy must balance their customers’ need for low costs (electronic goods are often sold in a fiercely competitive market) with their need for responsive and flexible service (electronics markets can also be volatile).
The company achieves this in a number of ways. First, it has an extensive network of design, manufacturing, and logistics facilities in the world’s major electronics markets, giving them significant scale and the flexibility to move activities to the most appropriate location to serve customers. Second, Flextronics offers vertical integration capabilities that simplify global product development and supply processes, moving a product from its initial design through volume production, test, distribution, and into post-sales service, responsively and efficiently. Finally, Flextronics has developed integrated industrial parks to exploit fully the advantages of their global, large-scale, high-volume capabilities. Positioned in low-cost regions, yet close to all major world markets, Flextronics industrial parks can significantly reduce the cost of production. Locations include Gdansk in Poland; Sárvàr in Hungary; Guadalajara in Mexico; Sorocaba in Brazil; Chennai in India; and Shanghai in China. Flextronics’ own suppliers are encouraged to locate within these parks, from which products can be produced on-site and shipped directly from the industrial park to customers, greatly reducing freight costs of incoming components and outgoing products. Products not produced on-site can be obtained from Flextronics’ network of regional manufacturing facilities located near the industrial parks. Using this strategy, Flextronics says it can provide cost-effective delivery of finished products within 1–2 days of orders.
Questions: ( Please Answer in your own words - Please do not copy from the Internet ) Each Answer Should be 500 - 1000 in your own words
1. What is the operations strategy of Ryanair, and how does it help to achieve low-costs?
2. How does Flextronics’ operations strategy help the company to satisfy its customers?
3. What specific operations competencies must Flextronics have in order to make a success of its strategy?