BUS 602

Management Information

System

Nadia Nahar

BSSE 0327

Dr. Md. Mahabubul Alam

Joardar 2

Background Study on ‘SOUTHWEST

Airlines’

Identify the Problems they Faced

Effects on Service

IT Solution

Result

Case Study Questions

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Herb

Kelleher

Rollin King

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Commenced customer service with 3 Boeing 737 aircraft serving 3 cities – Dallas, Houston, and San Antonio

Now operates more than 500 Boeing 737 aircraft in 68 cities

Operate more than 3300 flights a day

45,861 employees engaged

The United States’ most successful low-fare, high frequency, point-to-point carrier

Known as a “discount airline” since 19735

Mission Statement

• The current mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

Vision Statement

• To provide the most affordable, reliable, and comfortable air transportation in the world.

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Humor

Altruism

Luv

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Work Culture

Competitive Environment

Leadership

Trust

Open Sharing of Information

Creativity Spirit

Secret of

Success

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1. Rivalry is strong

Delta, United, Virgin, JetBlue

Price competition – lowest fares and best deals

Buyer demand is growing slowly – less travelling

Buyer cost to switch brands are low – since the prices

of airfares are relatively close among competitors,

buyers are considering other factors when deciding

which airline to fly with. Some of these factors include

baggage fees, meals, entertainment, flight schedules,

and customer service

Product differentiation is based on customer service

and experience – every airline basically provides the

same service, transportation. The thing that will set

one airline apart is the experience the customer has.

The competition has different objectives regarding air

travel – Southwest’s main objective is providing the

lowest cost with the best customer service.

5. Potential New Entrants is weak

Currently no new entrants

Entry barriers are high

o Other cost advantages held by industry members – Southwest is known for the low-cost provider. United and Delta have the most locations nationally

and internationally.

o Restrictive government policies – must gain approval from the Department of Transportation and Federal Aviation Administration (U.S.)

Industry outlook is risky and uncertain

4. Substitutes are strong

Good substitutes are readily available – cars, buses, trains

Substitutes are attractively priced – depending on where you are travelling, driving or taking a train may be cheaper

Buyer have low costs in switching to substitutes – depends on where one is travelling. It could be more economical to drive

2. Supplier Power is strong

Fuel Suppliers

Supplier products are critical to

industry members – FUEL,

Boeing aircrafts

Industry members incur high

costs in switching their

purchases to alternative

suppliers – it is expensive to

invest in solar power, or other

fuel supplies

No good substitutes

3. Buyer Power is strong

Easy access to information

(Internet)

Buyer costs of switching to

competing products is low –

customers choose the lowest

priced airline

Buyers are well informed about

the quality, prices, and costs of

sellers – online travel agencies

keep consumers well informed

about prices and airline

customer service quality

Buyers are price sensitive

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Innovations

1st airline to offer a profit-sharing plan to employees beginning in 1979, employees now own about 10% of company stock

1st major airline to offer “ticketless” travel system-wide

1st major airline to enter information superhighway by creating its own web page

1st airline to offer online booking

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Southwest Delta JetBlue

Key Success Factor/Strength MeasureImportance

WeightStrength

RatingWeighted

ScoreStrength Rating

Weighted Score

Strength Rating

Weighted Score

Customer Service 0.25 10 2.50 9 2.25 8 2.00

Brand/Reputation 0.10 7 0.70 10 1.00 6 0.60

Price/Value 0.10 9 0.90 7 0.70 7 0.70

Employee Satisfaction 0.05 9 0.45 8 0.40 6 0.30

Cost Reduction Strategies 0.15 7 1.05 6 0.90 5 0.75

Aircraft Maintenance/Safety 0.15 7 1.05 9 1.35 7 1.05

Time Efficiency 0.05 5 0.25 5 0.25 5 0.25

Marketing 0.05 6 0.30 8 0.40 5 0.25

Environmental Initiatives 0.10 7 0.70 7 0.70 7 0.70

Sum of importance weights 1.00

Overall weighted competitive strength rating 7.90 7.95 6.60

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Distribution• On Southwest

website

Retail• Via Web• At airport

Supply Chain Management• Fuel costs• Inventory

management• Merchandise

Service• Customer

assistance

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• Employee satisfaction

• Customer service

• Low fares

• Stable profitability

• Scheduled service

• Leadership

• No international flight (will initiate in 2014)

• Carry small amount of freight and cargo.

• Inconvenience to business customers

SWOT

• Government regulations and restrictions

• Fluctuation in gas and oil prices

• Operate At International Level

• Focus On Popular Destinations

Strengths Weakness

ThreatsOpportunity

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The airline’s success has led to continued

expansion

Legacy information systems have been unable to

keep up with the increasingly large amount of data

being generated

Lack of information visibility

Information about what replacement parts were

available at a given time was difficult or impossible

to acquire

affected response times for everything from

mechanical problems to part fulfillment

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Getting passengers from one location to another

with minimal delay is critically important

Repairing aircraft quickly is required

Aircraft groundings would have a strong impact on

the airline’s bottom line

Richard Zimmerman, Southwest’s manager of inventory

management, stated that “there’s a significant cost when we

have to ground aircraft because we ran out of a part. The long-

term, cost-effective way to solve that problem was to increase

productivity and to ensure that our maintenance crews were

supported with the right spare parts, through the right software

application.”

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Supply chain management software and services company

Purchased by JDA in January 2010

Global market leader of supply chain management software and services, with more than 3,200 customers

Zimmerman said “i2 and one of its competitors emerged invirtually a dead heat as far as what they could provide.However, we ultimately selected i2 because it better understoodour culture and would be able to work within the confines of ourcorporate culture. Southwest was very comfortable with thepeople from i2”

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Commitment to innovation

invested in excess of $1 billion in research and

development

broad solution footprint delivering some of the industry’s

leading supply chain management technology

more than 160 patents related to planning, scheduling

optimization, demand fulfillment, collaboration, e-

commerce and data management and reporting in its

solution portfolio

allowed JDA to combine i2’s patented technology,

industry knowledge and proven best practices —

along with its other acquired brands24

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i2 Demand Planner

i2 Service Parts

Planner

i2 Service Budget

Optimizer

i2 Demand Planner uniquely enables companies to:

Forecast all product options and components

Support constraint-based demand planning

Improve forecast accuracy

Increase velocity with industry-specific templates

Personalized data view

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i2 Service Parts Planner uniquely enables companies

to:

Increased forecast accuracy, even for slow-moving

or specialty parts

Lower inventory investments

Higher service levels, both in sales and returns

Better capacity and asset utilization across

locations

“the right parts are in the right location at the right

time”27

i2 Service Budget Optimizer uniquely enables

companies to:

Provides historical data to generate forecasts of

future usage.

Gets the most from your budget

Makes all of your budget work for you

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Southwest can recognize demand shortages before they become problems

Southwest’s managers now have a clear and unobstructed view of all of the data up and down the company’s supply chain

Planners can quantify the cost to the company of operating at different levels of service

Zimmerman added that i2 “will help us lowerinventory costs and keep our cost per air seat miledown to the lowest in the industry. Also, the solutionswill help us ensure that the maintenance team canquickly repair the aircraft so that our customersexperience minimal delays.”

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increased availability of parts

increased speed and intelligence of decision

making

reduced parts inventory by 15 percent

saving the company over $30 million

increased service levels from 92 percent prior to

the implementation to over 95 percent afterwards

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Why is parts inventory management so important at Southwest Airlines? What business processes are affected by the airline’s ability or inability to have required parts on hand?

Parts of inventory management practically determines whether or not Southwest Airlines keeps its reputation as a successful company.

Why part inventory management is so important-

will notify employees when an airplane needs to be serviced before problems occur.

give details as to what exact parts are needed in order to an airplane to be fully serviced.

without parts inventory management, it could be too late before the company knows what parts need to be replaced on an airplane.

provides the company with an quick and efficient way to keep track of parts, when they are needed for airplane repairs. 42

Why is parts inventory management so important at Southwest Airlines?

Why is parts inventory management so important at Southwest Airlines? What business processes are affected by the airline’s ability or inability to have required parts on hand?

Business processes affected by the airline’s ability or inability to have required parts on hand:

The manufacturing parts, because it is relied on the inventory management for producing the necessary parts.

The sales, because it depends on the airline’s ability to keep their airplanes maintained and safe.

The financial aspect, because the organization need to know how much money it should allocate to the spending on the needed parts in the present time and the future. 43

Why management, organization, and technology factors were responsible for Southwest’s problems with inventory management?

Management factor was responsible because managers were not heedful about the lack of information visibility

Organization factor was responsible because the structure and process, procedure of Southwest was not efficient enough and caused for major misunderstanding because the information needed to get the correct inventory was not available.

Technology factor was responsible because Information system was unable to keep up with the increasingly large amount of the date generated in the organization 44

How did implementing the i2 software change the

way Southwest ran its business?

forecast for all of the part location combinations in its system

provides better visibility into demand for each part

differentiate among individual parts based on criticality and

other dimensions such as demand volume, demand

variability, and dollar usage

have a better flow, accessibility, and better data management.

maintain customer relationships

help to keep ticket cost down

supplies will be readily available in case a mishap occurs.

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Describe two decisions that were improved by

implementing the i2 system.

Implementing the i2 system increased availability of

parts, increased speed and intelligence of decision

making.

Manufacturing decisions

Financial decisions

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