1

Operations Strategyand

Competitiveness

2

Operations Strategy as a competitive weapon

One of the key objectives of any business

organization is to reach a position where it is able to

attract more customers than it’s competitors

• Shorter Product Cycle / Pioneer status advantage

• Production flexibility

• Low-cost process (e.g. Outsourcing)

• Convenience and Location (e.g. Courier services)

• Product variety and Facility size (e.g. super markets)

• Quality (e.g. MNCs’ producing cars in India for

Exports)

3

Competitive Dimensions

• Cost or PriceMake the Product or Deliver the Service Cheap

• QualityMake a Great Product or Deliver a Great Service

• Delivery SpeedMake the Product or Deliver the Service Quickly

• Delivery ReliabilityDeliver It When Promised

• Coping with Changes in DemandChange Its Volume

• Flexibility and New Product Introduction SpeedChange It

• Other Product-Specific CriteriaSupport It

4Order Qualifiers and WinnersDefined

Order qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers

Order winners are the criteria that differentiates the products and services of one firm from another

5

Service Breakthroughs

A brand name car can be an “order qualifier”

Repair services can be “order winners”

Examples: Warranty, Roadside Assistance, Leases, etc

6

Operations Strategy

ExampleStrategy Process

Customer Needs

Corporate Strategy

Operations Strategy

Decisions on Processes and Infrastructure

More Products

Increase Org. Size

Increase Production Capacity

Build New Factory

7

Strategy Design Process

Strategy Map

Financial Perspective

Customer Perspective

Internal Perspective

Learning and Growth Perspective

Improve Shareholder Value

Customer Value Proposition

Build-Increase-Achieve

A Motivated and Prepared Workforce

What it is about!

8

The Balanced Scorecard

Judicious mix of financial and operational measures for measuring the performance

• Customer perspective

• Business process perspective

• Innovation and learning perspective

• Financial perspective

Balanced Scorecard Model for Measuring Operations Performance

Financial Perspective

Goals Measures

Customer Perspective

Goals Measures

Innovation & Learning Perspective

Goals Measures

Internal / Process Perspective

Goals measures

How do customers view the Operations?

At which Operations tasks must we excel

How do stakeholders view Operations?

10

Kaplan and Norton’s Generic Strategy Map

In the Kaplan and Norton’s Generic Strategy

Map, under the Financial Perspective, the

Productivity Strategy is generally made up from

two components:

1. Improve cost structure: Lower direct and indirect costs

2. Increase asset utilization: Reduce working and fixed capital

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Kaplan and Norton’s Generic Strategy Map (Continued)

In the Kaplan and Norton’s Generic Strategy

Map, under the Financial Perspective, the

Revenue Growth Strategy is generally made

up from two components:

1. Build the franchise: Develop new sources of revenue

2. Increase customer value: Work with

existing customers to expand relationships with company

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Kaplan and Norton’s Generic Strategy Map (Continued)

In the Kaplan and Norton’s Generic Strategy

Map, under the Customer Perspective, there

are three ways suggested as means of

differentiating a company from others in a

marketplace:

1. Product leadership2. Customer intimacy3. Operational excellence

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Kaplan and Norton’s Generic Strategy Map (Continued)

In the Kaplan and Norton’s Generic Strategy

Map, under the Learning and Growth

Perspective, there are three principle

categories of intangible assets needed for

learning:

1. Strategic competencies2. Strategic technologies3. Climate for action

Developing an Operations StrategyCorporate Objectives

Corporate Objectives

Business StrategiesBusiness Strategies

Operations Objectives

Operations Objectives

Operation StrategiesOperation Strategies

Long-range Decisions about Products, Processes and FacilitiesPosition the Production SystemFocus of Factories or Service FacilitiesProduct / Service Design and DevelopmentAllocation of Resources to AlternativesFacility Planning : Capacity, Location and Layout

Business Plan

Marketing Plan

Budget

Production Plan

Other Plan

Functional Areas

OperationsMarketingFinancing/AccountingResearch & Dev. Human CapitalStrengths and Weaknesses

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Steps in Developing a Manufacturing Strategy

1. Segment the market according to the product group

2. Identify product requirements, demand patterns, and profit margins of each group

3. Determine order qualifiers and winners for each group

4. Convert order winners into specific performance requirements

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Service Strategy Capacity Capabilities

• Process-based Capacities that transforms material or information and

provide advantages on dimensions of cost and quality

• Systems-based Capacities that are broad-based involving the entire

operating system and provide advantages of short lead times and customize on demand

• Organization-basedCapacities that are difficult to replicate and provide

abilities to master new technologies

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What is Productivity?Defined

Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio:

Outputs Inputs

Productivity – Introduction & Definition

• Productivity primarily is an attitude of mind – an attitude of looking at the scope for improvement

• It stands for the elimination of MUDA( Japanese ) or Waste in all forms

• It is the function of providing more and more of everything, for more and more people with less and less consumption of Resources

• The essence of productivity lies in producing the same volume with less resources or producing more output with proportionately less increase in inputs

Factors affecting Productivity

External Factors

• Beyond the control of individual Enterprise

• External Infrastructure

• Non- availability of Funds, Water, Power,

Transportation

• Raw Material Supply constraints

• Government Policies ( Emission Laws etc.)

• Social / Political / Economic Environment

Factors affecting Productivity ( contd.)

Internal Factors

• Hard Factors – Products / Technology / Plant & Eqpt.

/ Raw Materials

• Soft Factors – People / Work Methods / Systems &

Procedures / Organisation Structure / Management

Practices

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Total Measure Productivity

Total Measure Productivity = Outputs

Inputs

or

= Goods and services produced

All resources used

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Partial Measure Productivity

Partial measures of productivity =

Output or Output or Output or Output Labor Capital Materials Energy

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Multifactor Measure Productivity

Multifactor measures of productivity =

Output . Labor + Capital + Energy

or

Output . Labor + Capital + Materials

24Example of Productivity Measurement

You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms.

Which productivity measure should be used? Answer: Could be classified as a Total Measure or

Partial Measure. Is productivity increasing or decreasing? Answer: Last week’s productivity = 480/2000 = 0.24,

and this week’s productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly.

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Question BowlAn operations strategy is concerned

with which of the following?a. Setting specific policies and plansb. Short-term competitive strategiesc. Coordination of operational goalsd. All of the abovee. None of the aboveAnswer: c. Coordination of operational goals

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Question Bowl

Typically a strategy breaks down into what major components?

a. Operations effectivenessb. Customer managementc. Production innovationd. All of the abovee. None of the above

Answer: d. All of the above

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Question Bowl

A criterion that differentiates the products and services of one firm from another can be which of the following?

a. An order qualifierb. An order winnerc. PWPd. KPIe. None of the above

Answer: b. An order winner

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Question Bowl

A travel agency processed 240 customers on Day 1 with a staff of 12, and 360 customers the on Day 2 with a staff of 15. What can be said about the productivity shift from Day 1 to Day 2?

a. An increase in productivity from Day 1 to Day 2b. A decrease in productivity from Day 1 to Day 2

c. The same productivity from Day 1 to Day 2

d. Can not be computed from data abovee. None of the above

Answer: a. An increase in productivity from Day 1 to Day 2(Day 1 productivity = 240/12=20

Day 2 productivity = 360/15=24)

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Question Bowl

In addition to traditional financial measures, what critical questions can a Balanced Scorecard help a company answer?

a. How do customers see us?b. What must we excel at?c. How can we continue to improve and create

value?d. All of the abovee. None of the above

Answer: d. All of the above

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Solved Problems – OPERATIONS MANAGEMENT(Class of 2010)

Q3. d) Various financial data for 2002 & 2003 follow. Calculate the total productivity measure and the partial measure for labour, capital and raw materials for this company

for both years. What do these measures tell you about this company?

Answer :- Total Productivity = Output

Input

2002 2003

Output Sales $ 2,00,000

$2,20,000

Input Labour 30,000

40,000

Raw Material

35,000

45,000

Energy 5,000

6,000

Capital 50,000

50,000

Others 2,000

3,000

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Output 2002 2003

2,00,000 2,20,000

Input 2002 2003

Labour 30,000 40,000

Raw Materials 35,000 45,000

Energy 5,000 6,000

Capital 50,000 50,000

Others 2,000 3,000

Total Inputs 1,22,000 1,44,000

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a) Total Productivity measure

Year 2002

Total Productivity = Output

Input

= 2,00,000

1,22,000

= 1.66

Year 2003

Total Productivity = 2,20,000

1,44,000

= 1.53

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b) Partial Productivity measure (Labour)

Partial Productivity measure = Total Output Cost of Labour

for the year 2002 = 2,00,000 = 6.67 30,000

for the year 2003 = 2,20,000 = 5.5 40,000

c) Partial Productivity measure (Capital)

Partial Productivity measure = Total Output Capital

for the year 2002 = 2,00,000 = 4 50,000

for the year 2003 = 2,20,000 = 4.4 50,000

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d) Partial Productivity measure (Raw Materials)

Partial Productivity measure = Total Output

Cost of Raw Materials

for the year 2002 = 2,00,000 = 5.71

35,000

for the year 2003 = 2,20,000 = 4.88

45,000