OPSM 501: Operations Management Session 3&4: Strategic Fit Process selection Koç University...

OPSM 501: Operations Management

Session 3&4:

Strategic Fit

Process selection

Koç University Graduate School of BusinessMBA Program

Zeynep Aksinzaksin@ku.edu.tr

Shouldice HospitalVideo Case wrap-up

On what product attributes does Vestel Elektronik compete?

Firms compete on product attributes.This requires process capabilities.

Price (Cost) P Quality Q

– Customer service– Product quality

Time T– Rapid, reliable delivery– New product development

Variety V– Degree of customization

“order winners”

To deliver we need “capabilities”

Strategic Operational Audit

DesiredBusiness Strategy

Operations Strategy

DesiredCapabilities

Marketing, …, Financial Strategy

Desired Oper’l Structure:

Processes & Infrastructure

Product Attributes

P, T, Q, V

Process Attributes

C, T, Q, Flex

Existing Capabilities

Operational Structure:

Processes & Infrastructure

Existing Desired

FeasibleBusiness Strategies

Strategy Gap?

Measures

Capability Gap?

Process Gap?

What are process attributes at Vestel? How are these achieved?

Classification of Processes:by Customer Interface

SU

PP

LIE

R

CL

IEN

T

Make-to-Stock

Assemble-to-Order

Make-to-Order

Engineer-to-Order

Raw Material Components Semifinished Finished

Forecast Order

Competing on variety requires flexibility

Europe’s number 1, world’s number 2. OEM TV producer! 6% of World TV production.

Daily capacity: 50.000 TVs (average production 35.000/day)

20 parallel assembly lines Flexibility to produce 40 different brands-models

in a day 60% of orders for quantities less than 200 Direct deliveries to some chain stores in Europe

Where is Vestel Elektronik on the product-process matrix?

Industrialization 1: Standardizing

Process

Product

Flexible Job Shop

Batch Flow

Rigid Line Flow

High Customization

Some Customization

High Stardardization

Industrialization 2: Flexibility

Vestel

Process

Product

Flexible Job Shop

Batch Flow

Rigid Line Flow

High Customization

Some Customization

High Stardardization

Strategic Value Gained

Out of price!

Vestel Out of Fashion!

Process

Product

Flexible Job Shop

Batch Flow

Rigid Line Flow

High Customization

Some Customization

High Stardardization

Threats going forward?Strategy going forward?

The product-process matrix

Classification of Processesby process architecture

Project

Job Shop

Batch

Line Flow

Continuous Flow

Job Shop

Flow Shop

The Job Shop Process

Process Layout One of a Kind Build

– (To Customer Order)

Absence of Rigid Flow Pattern Usually High Product Mix

Process Layout

Lathe#Lathe#11

Lathe#Lathe#22

Lathe#Lathe#33

LatheLathe#4#4

Product #1735B: Start of Production

Drill Drill Press Press #1#1

Drill Drill Press Press #2#2

Paint Paint MachineMachine

Packaging Packaging Machine #1Machine #1

Packaging Packaging Machine #2Machine #2

Finish

Production

The Flow Line Process

Product Layout Discrete Parts Rigid Flow Pattern Product Mix of Standard Products

Product Layout

Product #1735B

LatheLatheStart

Production

Drill Drill Press #2Press #2 Paint MachinePaint Machine

Drill Drill Press #1Press #1

Packaging Machine #2Packaging Machine #2

Finish Production

What is innovative about Zara?

Zara Business Concept

Low Cost Focus on getting it

approximately correct Define a fast process Solve the material

constraint Constrain designers Optimize the offer Offer follow-up (next batch)

and create customer flows

Fashion Store experience Copy fashion Involve the customers and

his group Create a network/brand

Integrated fashion delivery: Fashion at low cost

Zara Customer Offer: Product/Process Attributes Quality:

– Raw Material: poor/OK

– Knit: poor

– Look: grand

– Customer satisfaction: fashion at low price

Cost:– Low monetary cost

– Low time cost “The Zara experience”

Time:– Fast copying of leading

styles

– Fast delivery in own stores

– Limited editions

Variety/Flexibility:– Limited product variety:

only what is on display

– Every customer is participating in the process

– Customer defines the next batch

Classical textile business process:12 month lead time

DesignPurchase

RMMfg Dist Sell Discount

Zara Business Process: 5 day lead time

1.Scan fashion shows

2.Simplify hits&

Library of designs

Purchase RM

2.Shoppers and store mgrs.PULL next designDesigners adapt

ShoppingExperience

3.Final design ofNext batch

.

Mfg Dist

The design process

Creative designPreliminary

designsFinal product

design

Final product design

Preliminary designs

Creative design

OutsourceAnd scan

Copy andsimplify

Adapt andoptimize

Traditional

Zara

Why is profitability in textile so low, when margins are so high?

Expected demand Actual demand

Perfect forecast

Excess demandExcess stock

Accurate Response

Improving Forecasts

0

500

1000

1500

2000

2500

3000

3500

4000

0 500 1000 1500 2000

Initial Forecast

Tot

al S

ales

Accurate Response

Improving Forecasts

0

500

1000

1500

2000

2500

3000

3500

4000

4500

0 500 1000 1500 2000 2500 3000 3500 4000

Updated Forecast, Incorporating 20% of Sales Data

Tot

al S

ales

Accurate Response

Improving Forecasts

0

500

1000

1500

2000

2500

3000

3500

4000

4500

0 500 1000 1500 2000 2500 3000 3500 4000

Updated Forecast, Incorporating 80% of Sales Data

Tot

al S

ales

Zara’a Approach to Demand uncertainty

Expected demand Actual demand

Small batches

Excess stock and unmet demand are avoided by stopping production when market saturates

Disruptive Technological Change

Time

Performance

Zara QualityFreshness

M&S Zara

Zara as a lean enterprise

Zara M&S

Clear focus on one customer type and one process

No focus, multiple and simultaneous goals

Unique and clear value prop. Confusion of implicit value proposition

Predictable process Unpredictable and fuzzy process

Strive for perfection Satisfied with threshold performance

Eliminate waste Tolerate some excess

Manage customer flows View customers as a sequence of tasks

Pull customers into process Pushes customers through the system

Industrialization 1: Standardizing

High Fashion

Marks &Spencer

Mass Merchants

Process

Product

Flexible Job Shop

Batch Flow

Rigid Line Flow

High Customization

Some Customization

High Stardardization

Industrialization 2: Flexibility

High Fashion

Zara Marks &Spencer

Mass Merchants

Process

Product

Flexible Job Shop

Batch Flow

Rigid Line Flow

High Customization

Some Customization

High Stardardization

Strategic Value Gained

High Fashion

Out of price!

Zara

Marks &Spencer

Out of Fashion!

Mass Merchants

Process

Product

Flexible Job Shop

Batch Flow

Rigid Line Flow

High Customization

Some Customization

High Stardardization

Key learnings from Operations Strategy module

Business model: customer segment and selected processes to match those segments’ needs

Product-process attributes: P, Q, T, V (C, Q, T, Flex) (what?)

Operating effectiveness (how well?) Product-process matrix Lean enterprise: focus, which allows clear value

proposition, perfection (optimization), elimination of waste, and focus on customer flows

Process competition: Shouldice, Vestel Elektronik, M&S, Zara

Announcements

We will play the house building game, see instruction slides that follow

Start reading The Goal Course TA: Beliz Keçelerli; Office Hours T-Th

11-12:30 or by appointment CAS Z52 bkecelerli@ku.edu.tr

KEEP DESKS CLEAR!

Only need a pen or pencil.Please keep desks and aisles

clear of notebooks, PCs, backpacks etc.

Please do not disturb materials!

HouseBuilding.com:Manufacturing Operations

Production Control(color sheets, log sheets, scissors)

(scissors)

Base Punch(scissors)

Final Assembly(tape)

Base Weld(stapler)

Quality Control

Customer

Roof Base Form

Production Control Operating Procedures

Prepare a batch of 4 units.– Cut each sheet (one at a time) into two: roof and base.– Write the batch number on the roof and the base. All items in the same batch have the

same number. The numbers have to match in assembly.– Repeat – 4 times, which yields one batch

When 4 units (one batch) are complete, “release” the batch.– Put the batch in your out-basket: it’s ready for pickup by the trucker.– Record release time for each batch.

Release one batch each minute.

Truckers Operating Procedures

Truckers are responsible for transporting work in process inventory between production steps.

You can carry only one batch of 4 roofs or 4 bases at a time. Not both!

Production Control(color sheets, log sheets, scissors)

(scissors)

Base Punch(scissors)

Final Assembly(tape)

Base Weld(stapler)

Quality Control

Customer

Roof Base Form(scissors)

Roof Operating Procedures

Cut the roof along double lines, one at a time. Fold roof along dotted line at top. Think quality! Work in batches of 4 units. When a batch is ready, call the trucker and send to

Final Assembly. Ask trucker for inputs when needed.

Base Punch (Cut) Operating Procedures

Cut the base along double lines, one at a time. Think quality! Work in batches of 4 units When a batch is ready, call the trucker and send to Base

Form. Ask trucker for inputs when needed.

Base Form Operating Procedures

Fold the lines on the base (4 folds). Work in batches of 4 units When a batch is ready, call the trucker to send them

to Base Weld. Ask trucker for inputs when needed

Base Weld Operating Procedures

Staple base on top and bottom about 0.5 cm from the edge. Work in batches of 4 units. When a batch is ready, call the trucker to send them to

Final Assembly. Ask trucker for inputs when needed.

Final Assembly Operating Procedures

Tape the roof to the base (2 tapes). Work in batches of 4 units. When a batch is ready, send them to QA. (No trucker

required.) Ask trucker for inputs when needed.

Quality Assurance Operating Procedures

Check each batch if they conform to quality standards!

If the house conforms to quality standards, put it on the market. Once on the market no more rework!

Customers can reject houses

Quality Standards

Batch numbers must match. Folds and cuts should be along

appropriate lines.– Folds should be crisp and cuts

should be straight. Roof should be centered and

door should be visible.– Top of base should be flush

with roof. Staples and tape should be

centered and parallel to the ground.– Not too much tape. About 1 cm– Staples about 0.5 cm from

edge.

House Game Overview

Quality Standards

Batch numbers must match. Folds and cuts should be along

appropriate lines.– Folds should be crisp and cuts

should be straight. Roof should be centered and

door should be visible.– Top of base should be flush

with roof. Staples and tape should be

centered and parallel to the ground.– Not too much tape. About 1

cm.– Staples about 0.5 cm from

edge.

Production Control(color sheets, log sheets, scissors)

(scissors)

Base Cut(scissors)

Final Assembly(tape)

Base Weld(stapler)

Quality Control

Customer

Roof Base Form(scissors)

HouseBuilding.com: Operational Performance

Flow time T

House # 1To - Ti = T

QualityQ = R/ Ro

InventoryI

OutputRo

InputRiHouse # 16

To - Ti = T

SalesR

Team(color)