"SOUTHWEST AIRLINES TAKES OFF WITH BETTER SUPPLY CHAIN MANAGEMENT" is the MIS case study presentation on Southwest Airlines

1. BUS 602
Management Information
System

2. Nadia Nahar
BSSE 0327
Dr. Md. Mahabubul Alam
Joardar 2

3.  Background Study on ‘SOUTHWEST
Airlines’
 Identify the Problems they Faced
 Effects on Service
 IT Solution
 Result
 Case Study Questions
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4. Herb
Kelleher
Rollin King
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5.  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 1973
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6. 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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7. Humor
Altruism
Luv
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8. Secret of
Success
Work Culture
Competitive Environment
Leadership
Trust
Open Sharing of Information
Creativity Spirit
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9. 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
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
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
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10. 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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11. Southwest Delta JetBlue
Key Success Factor/Strength Measure
Importance
Weight
Strength
Rating
Weighted
Score
Strength
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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12. Distribution
• On Southwest
website
Retail
• Via Web
• At airport
Supply Chain
Management
• Fuel costs
• Inventory
management
• Merchandise
Service
• Customer
assistance
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13. • 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
Opportunity Threats
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21.  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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22.  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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23. 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 in
virtually a dead heat as far as what they could provide.
However, we ultimately selected i2 because it better understood
our culture and would be able to work within the confines of our
corporate culture. Southwest was very comfortable with the
people from i2”
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24.  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 brands
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i2
Demand
Planner
i2 Service
Parts
Planner
i2 Service
Budget
Optimizer

26. 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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27. 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

28. 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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29.  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 lower
inventory costs and keep our cost per air seat mile
down to the lowest in the industry. Also, the solutions
will help us ensure that the maintenance team can
quickly repair the aircraft so that our customers
experience minimal delays.”
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30.  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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42. 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

43. 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

44. 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

45. 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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46. 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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