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Chapter-01
Operations StrategyOperations Strategy
An Introduction to Operations
Strategy
Operations management and strategy requires analysis at three levels
Flow between operations Analysis at the
level of the supply network
Analysis at the level of the operation
Flow between processes
Analysis at the level of the process Flow between resources
Strategic analysis
Operational analysis
Operations strategy is …
‘… the total pattern of decisions …
… whilst managing the risks of misalignment’.
… through the on-going reconciliation of market requirements and operations resources …
… and their contribution to overall strategy…
… of any type of operation ...
… that shape the long-term capabilities …
… so as to achieve a sustainable fit between the two …
How is operations strategy different from operations management?
Timescalee.g. capacity
decisions Dem
and
1 – 12 months
Short-term
Operations management
Long-term
De
ma
nd
1 – 10 years
Operations strategy
How is operations strategy different from operations management?
Level of analysisConcerned with the
macro operation (level of the firm)
Micro
Operations management
Macro
Operations strategy
How is operations strategy different from operations management?
Level of aggregation(Concerned with resources at an aggregated level)
Detailed
Operations management
Aggregated
Operations strategy
‘Can we give tax services to the small business market in
Antwerp?’
‘What is overall business advice
capability compared with other
capabilities?’
How is operations strategy different from operations management?
Level of abstraction(Concerned with the conceptual)
Concrete
Operations management
Philosophical
Operations strategy
‘How do we improve our purchasing
procedures?’
‘Should we develop strategic alliances
with suppliers?’
Products or services?
Manufacturing or non-manufacturing?
What is operations strategy about?
For profit or not-for-profit?
The sectoral scope of operations strategy
The four perspectives on operations strategy – top-down, bottom-up, market requirements and operations
resourcesTop-down
Operations strategy should interpret higher level strategy
Operationsresources
Operations strategy should build operations
capabilities
Operations strategy should learn from
day-to-day experiences
Bottom-up
Market requirements
Operations strategy should satisfy the
organisation’s markets
Operations strategy must reflect four perspectives – top-down, bottom-up, market requirements, and operations
resources
Top-down
Bottom-up
Corporate strategy
Business strategy
Emergent sense of what the strategy
should be
Operational experience
Operations
resources
CapacitySupply networksProcess technologyDevelopment and organisation
Market requirements
QualitySpeed
DependabilityFlexibility
Cost
Top-down and bottom-up perspectives of strategy for the Metrology Company
Corporate objectives impact on business objectives which, in turn, influence Operations
Strategy
Top down
Corporate strategy
Business strategy
Bottom up
Day-to-day experience of providing products and services to the market
reveals problems and potential solutions which become formalised
into Operations Strategy
Emergent sense of what the strategy should be
Operational experience
Operations strategy
Operations must have fast and flexible technology, supply
relationships, process and staff
Modular strategy provides flexibility and innovation at
relatively lowcost
Group building corporate capability in high technology products and
servicesMetrology division competes on
‘fast-to-market’ innovations
Experiment with ‘modular’ design of key products and components
Customers confused by continual product innovation and costs are increasing
Corporate objectives impact on business objectives which, in
turn, influence OperationsStrategy
Bottom up
Top down
Day-to-day experience of providing products and services to the market
reveals problems and potential solutions which become formalised
into Operations Strategy
Top-down and bottom-up perspectives of strategy for the Metrology Company
Operations strategy reconciles the requirements of the market with the capabilities of operations
resources
Operations resources
Market requirements
Strategic reconciliation
OPERATIONS STRATEGY
Operations strategy is the strategic reconciliation of market requirements with
operations resources
Tangible and intangible resources
Operations capabilities
Operations processes
Operations strategy
decision areas
Customer needs
Market positioning
Competitors’ actions
Performance objectives
Understanding resources
and processes
Strategic decisionsCapacitySupply networksProcess
technologyDevelopment and organisation
Required performanceQuality
SpeedDependabilityFlexibilityCost
Understanding markets
The ‘market requirements’ and ‘operations resource’ analysis of the
lighting companyResourcesEquipmentStaffReputationRelationships (internal
and external)Experience
CapabilitiesApplication of leading edge lighting and sound technologyArticulation of client requirements
ProcessesIntegration of equipment supply and client requirementsDesign processSupplier liaison process
Operations strategy decisions
LocationVirtual reality technologySupplier developmentEquipment racking systemOrganisational structureStaff meetings
CustomersProfessional theatres (static, low margins)Exhibitions (slow growth, low margins)Conferences etc. (fast growth, higher margins
Market positionTraditionally differentiated on high service level in theatre and exhibition markets, innovation and service in conference market
CompetitorsBig groups dominating professional theatresIn-house operations growing in exhibitions marketConference market still fragmented
Performance objectives
Aesthetically innovative designsPresentation adviceHigh customisation of lighting solutionsFast and dependable supply
The market perspective analysis of the garment company
PERFORMANCE OBJECTIVES MARKET POSITION Differentiation on:
CUSTOMERS Segmentation on:
Age – youthPurpose – general
COMPETITORS Traditionally weak in:
Innovative productsTime to marketProduct rangeCoordinated launches
promotiondesign innovation
DependabilitySpeed of deliveryProduct mix flexibilitySpeed to market
Capabilities
Resources Tangible:
EquipmentStaff
Processes
ReputationRelationships (internal
and external)Experience
Intangible:
Application of leading-edge lighting and sound technologyArticulation of client requirements
Integration of equipment supply and client requirementsDesign processSupplier liaison process
Operations strategy decisionsLocationVirtual reality technologySupplier developmentEquipment tracking systemsOrganisational structureStaff meetings
The operations resource perspective analysis of the lighting company
What you HAVE
in terms of operations capabilities
What you NEED
to ‘compete’ in the market
Operations resources
Market requirements
What you WANT
from your operations to
help you ‘compete’
What you DO
to maintain your
capabilities and satisfy
markets
Strategic reconciliation
Operations strategy is …..
‘… the decisions which shape the long-
term
capabilities of the company’s operations
and
their contribution to overall strategy
through
the on-going reconciliation of market
requirements and operations resources …’
ProfitTotal
assets
OutputTotal
assets
ProfitOutput= ×
Decomposing the ratio profit/total assets to derive the four strategic decision areas of operations strategy
OutputTotal
assets
OutputCapacity
Fixed assetsTotal
assets
CapacityFixed assets
Utilisation Working capital
Productivity of fixed assets
= × ×
ProfitOutput
RevenueOutput
CostOutput
Average revenue
Average cost
=
Operations strategy decision areas
Capacity Supply network
Process technology
Development and
organisation
Operations strategy decision areas are partly structural and partly infrastructural
Capacity
Development and organisation
Supply network Process technology
Structural issues
Infrastructural issues
Operations strategy
Per
form
ance
obj
ectiv
es Quality
Speed
Dependability
Flexibility
Cost
Development and
organisationCapacity
Supply network
Process technolog
yDecision areas
Mar
ket c
ompe
titiv
enes
s
The operations strategy matrixResource usage
7-Eleven Japan
Sells 15.X as much per store as nearest rival
History of cautious expansion and technical and service innovation
‘Field Counsellors’ spread operations knowledge (also distance training)Expansion by territory to reduce distribution costs
Early use of TIS (Total Information System)
TIS controls stock replenishment by twice a day delivery (sales analysed twice a day)
New systems not Internet-based
New service includes:
Bank terminals
Downloading games
Downloading music to MD
Internet ordering and collection
Largest retailer in Japan
COST in terms of minimising…•operating cost•capital cost•working capital
QUALITY of productsand services
Speed anddependability combinedto indicate AVAILABILITY
FLEXIBILITY ofresponse to sales and customer trends
Area dominancereduces distributionand advertising costs
•Location of stores•Size of stores
Distribution centre grouping by temperature
Distribution centresand inventory management systems give fast stock replenishment
TIS allows trends tobe forecast andsupply adjustments made
Common distribution centers give small frequent deliveriesfrom fewer sources
•Number and type of distribution centres•Order and stock replenishment
TIS gives comprehensive and sophisticated analysis of sales & supply patterns daily
•The Total Information System
(TIS)
Information sharingand parenting system spreads serviceideas
Field counsellors with sales data helpstores to minimise waste and increase sales
•Franchisee relationships
•New product/service development•Approach to operations improvement
DEVELOPMENT AND ORGANISATION
PROCESS TECHNOLOGY
SUPPLY NETWORKS CAPACITY
RESOURCE DEPLOYMENT
Ma
rke
t C
om
pe
titi
ve
ne
ss
Pivotal Critical Secondary
7-11 JAPAN
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