Strategic Importance of Operation Management

BY: OT C H A N DY, B E & M S C .M A NAG E M E N T I N S T I T U T E O F C A M B O D I A

Chapter 2:Operation Strategy

After finish this chapter…

Define an operation strategy

Able to identify the 9 different competitive priorities used in operation strategies

Able to describe the role of operation strategy as source of competitive strength

Contents

Coporate strategy

Market analysis

Modern day operation capabilities

Competitive priorities and capabilities

Operation as strategic importance

Modern day organizations have to excel inMass customizationLean productionAgile manufacturingCustomer-centric provisionEtc.

Depend on ability to actually do these things and it is reside within operations.

Late 1990s, Toyota announceed their strategic intention to expand capacity and produce even more automobiles.

By 2004, Toyota had fulfilled their promise and become 2nd car producer in USA.

Dell Computers have in-house capabilities that others have found difficult to imitate.

The problem with some organizations is that they don't have senior-level personnel in place who fully understand the potential that operation can have.

Contents map

Coporate strategy

Market analysis

Corporate strategy…

Corporate strategy specifies the businesses that the company will pursue, isolates new opportunities and threats in the environment, and identifies the growth objective.

Also address, how a firm can differentiate itself from the competition.

Choices could include producing standardized versus customized services or products or competing on the basis of cost advantage versus responsive service delivery.

Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization's functions.

Strategic consideration:Developing corporate strategy involves three considerations:

1. Monitoring and adjusting to CHANGES

2. Identify and develop core competences

3. Develop core processes

1. Environmental scanning: Environment CHANGES rapidly Firm need to adapt to these changes

Scan by monitor trends in the socioeconomic environment incl. industry, marketplace, and society.

Scan for threats and opportunities

1. Environmental scanning: Threats: new entrants, new products

and services, low cost players, high quality product line etc.

Opportunities: economic trends, technological changes, new policies, living style, availability of new resources, collective power of customers and suppliers

2. Development of core competences: Good managerial alone can not

overcome changes Success firms take the advantage of

what they do well – unique strengths Core competencies are the unique

resources and strengths that an organization's management considers when formulating strategy.

2. Development of core competences: Core competencies include:

Management of value Capacity management Workforce Facilities Market and financial know-how System and technology Integratationa and affiliation

3. Development of core processes: Firm's core competencies should

determine core processes The four core processes

Customer relationship New service/product innovation Order fulfillment Suppliers relationship

3. Development of core processes:

3. Development of core processes: Many companies have all four of these

core processes esp. news paper industry.

Important point is every firm MUST evaluate their core competencies and chose to focus on thoses processes that provide greatest competative strengths.

Global strategies:Identifying opportunities and threats

today require a global prespective.

Global strategy may include buying foreign services or parts, combating threat from foreign competitors, or planning way to enter market beyond national boundaries.

Global strategies:Two effective global strategies are:

1. Strategic alliances in the form of collaborating effort, joint venture, technology (know-how) licensing

2. Locating abroadi

McDonald vs. Jollibee in the Philippines

Contents map

Coporate strategyMarket analysisModern day operation capabilitiesCompetitive priorities and capabilities

Market Analysis

Market segmentation:Market segmentation is a process of

identifying groups of customers with enough in common to warrant the design and provision of services or products that larger group wants and needs.

It is allow firm to incorporate the needs of customer into the design of the service or product and the processes for its production.

Market Analysis

Market segmentation: Characteristic use to determine market segments:

Demographic factors: age, income, education level, occupation, and location

Psychological factors: pleasure, fear, innovativeness, and boredom

Industry factors: specific technology, use certain materials, or participate in particular industry

Market Analysis

Market segmentation:Another important note: two customers

may use the same product for very different reasons.

Identifying the key factors in each segment is the starting point in devising a customer-driven operation strategy.

Market Analysis

Need Assessment:What are the needs for each market

segment?

How well competitors are addressing those needs?

Need assessment should include: tangible and intangible service or product attributes and features that a customer desires.

Market Analysis

Need Assessment:Market needs may be group as follow:

Service or Product Needs: price, quality, degree of customization

Delivery System Needs: availability, convennience, courtesy, safety, accuracy, reliability, delivery speed, and delivery dependability

Market Analysis

Need Assessment:Market needs may be group as follow:

Volume Needs: high or low vol, degree of variability in vol, and degree of predictability in vol.

Other Needs: reputation and num of year in business, after sale technical support, ability to invest in international financial market, competent legal services, and service or product design capability.

Contents map

Transition of operation from craft – mass – agile

Craft era:Low volume

High variety

Firm capable of flexibility

High level of skill and quality

Mass production: High volume Standard product Produce at low cost without or less varieties Work is largely de-skill Repetitive and narrow in scope with little

flexibility from workers Automation is dedicated to small product

range Production/operation is views as low grade

function in firm

Mass customization:A firm's service or product strategy

addresses certain competitive priorities that will win orders from customers.

One such competitive priority is variety.

Mass customization:Considering the paint retailer! They

are praticing a strategy known as mass customization.

Mass customization is a strategy whereby a firm's flexible processes generate a variety of service or product at reasonable low costs.

Mass customization:Postponement:

A key to being mass customizer is postponing the task of differentiating a service or product for a specific customer until the last possible moment.

Mass customization:Postponement apply to service:

The Ritz-Carlton Hotel, will record customers preferences and will add into its service to tailor made the preferences of the same customers when they check in again.

Mass customization: Postponement apply to manufacturing:

HP postpones assemble of its printers with the country-specific power supply and packaging of appropriate manual until the last step in the process, which is perform by distributor in the region where printer is being delivered.

Being a successful mass customizer such as HP may require the redesign of products or processes.

Benneton, a major producer of sweater, rather than dyeing the yarn before manufacturing the sweater; it reverse this process to after and wait until there are orders (usually large retail buyers).

Mass customization:Internet implication:

Internet has been a valuable technology for mass customization strategies.

Dell sells computer through web page that allow consumers to configure their computers from large variety of options.

Ford and GM also do the same

Dell Online Store

Mini Copper customization online

Mass Customization

Watch interview with Andrew Lippman, Founder of MIT Media Lab .

Mass customization:Internet implication:

Each of these ventures provide customers an enormous amount of choice in the service and product they buy.

But also put a lot of pressure on processes that must produce them.

So, flexibility and short response times are prized qualities for mass-customization processes.

Contents map

Competitive capabilities

Cost 1. Low-cost operations

Quality 2. Top quality

3. Consistent quality

Time 4. Delivery speed

5. On-time delivery

6. Development speed

Flexibility 7. Customization

8. Variety

9. Volume flexibility

Cost: Lowering prices can increase demand for

services or products BUT it is also reduces profit.

Low-cost operation is delivering a service or producing a product at lowest possible cost to the satisfaction of process’s external and internal customers.

Quality: Quality is a dimension of a service or product

that is defined by external and internal customers.

Two important competitive priorities: Top quality Consistent quality

Time: Delivery speed: lead time is use to measure

this delivery speed.

On-time delivery: meeting delivery time as promise

Development speed: how quick the new service or product is introduce to the market.

Flexibility: Customization: is satisfying the unique needs of

each customer by changing service or product design.

Variety: is handling wide assortment of services or products efficiently. It is different from customization because service or product is not necessary unique.

Volume flexibility: is accelerating or decelerating the rate of production of services or products quickly to handle large fluctuations in demand.

Contents map

Coporate strategyMarket analysisModern day operation capabilitiesCompetitive priorities and capabilities New product or service development

New Product/Service Development

Essential to long term survival

Time change, people change, technology change service or product must also changes

New product/service Brand new

Major changes to existing services

Development strategies1. Product variety: must be able to capture

niches market. Require flexible processes to offer wide variety

without compromise cost, quality, or speed.

2. Design: aesthetic appeal, safety, ease of use, ease of maintenance.

Compete on this require top quality & speed of introduction to the market.

Development strategies3. Innovation: must be able to develop new

technology and translate into new products. Require significant research and development

by tech engineer and ability to move fast to market.

4. Service: providing value added services to complement the products.

Smart phone innovation

Development strategies Market positioning:

Leader: be the first to introduce new service/product

Middle-of-the road: wait until leader have introduced a new service or product

Laggard: wait and see if service or product idea catches on in the market.

Benefit from new product/service:

Enhancing the profitability of existing offering

Attract new customers to the firm Improving the loyalty of existing customer Open new market

Development phases:

Design AnalysisDevelopme

ntFull launch

• Simple Innovation process

The End

THANKS

Your home work

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