-Operations Strategy

MBA 642

Mike Busing

Spring 2003

Strategy

• Definition:

Strategy

• Definition: the science or art of military command as applied to the overall planning and conduct of large-scale combat operations. (The American Heritage Dictionary)

Elements of Strategy from a Business Unit Perspective

Corporate Mission

• is a set of long-range goals unique to each organization.

• Includes statements about:– kind of business the company wants to be in– who its customers are– its beliefs about business– its goals of survival, growth, and profitability

Business Strategy

• long-range game plan for the the organization.

• provides road-map of how to achieve the corporate mission given:– global business conditions– distinctive competencies/weaknesses (anything

that helps the firm to capture market share)

Competitive Priorities

• Low production costs

• High quality products and services

• Fast/on-time delivery

• Customer service and flexibility

• Speed

Operations Strategy

• long-range game plan for the production of a company’s products and services. It provides a road map for what operations must do if business strategies are to be achieved.

Operations Strategy (cont’d)

• Answers such questions as:– What new products must be developed?– When should new products be introduced into

production?– What new production facilities are needed?– When should the new production facilities be

completed?

Elements of Operations Strategy I. Positioning the Operations System

• Type of product design– custom products– standardized products

Elements of Operations StrategyI. Positioning the Operations System

• Type of product design– custom products– standardized products

• Type of production processing system– product focused or line flow (good for low

variety high volume)– process focused (good for high variety

(custom), low volume)

Elements of Operations Strategy I. Positioning the Operations System

• Type of finished-goods inventory policy– produce to stock (aka: make to stock)– produce to order (aka: make to order)

Elements of Operations Strategy I. Positioning the Operations System

Elements of Operations StrategyII. Focus of Production

• Without economies of scale, it may be beneficial to focus on a narrow product mix for a particular niche. Otherwise the factory/service facility may become vulnerable to smaller and more specialized competitors who can provide better cost, delivery, quality, and/or service.

Elements of Operations StrategyIII. Product/Service Plans

• Introduction: production and marketing developing and profit is negative.

• Growth: sales grow dramatically, marketing efforts intensify, production concentrates on expanding capacity fast enough to keep up with demand and profits begin.

Elements of Operations StrategyIII. Product/Service Plans

• Maturity: production concentrates on high volume, efficiency, and low costs; marketing uses competitive sales promotion aimed at increasing or maintaining market share. Profits at peak

• Decline: product may be dropped by the firm or replaced by improved products due to declining profits and sales.

Elements of Operations StrategyIV. Production Process and Technology Plans

• Matching high volume/low variety product line with product focused production technology

• Matching low volume/high variety product line with process focused production technology

• Intermediate case??

Elements of Operations StrategyV. Allocation of Resources to Strategic Alternatives

• Resources are scarce– e.g., product mix problem and other

optimization problems

Elements of Operations StrategyVI. Facility Plans

• Capacity, location, and layout decisions– The internal arrangement of workers,

production processes, and departments within the facilities can affect the ability to provide desired volume, quality, and cost of products.

– Walker manufacturing example.

Positioning Strategies for Services

• Type of Service Design: (i.e., standard or custom product, amount of customer contact, mix of physical goods and intangible services)

• Type of Production Process: (i.e., quasi manufacturing, customer as participant, customer as product)

Competitive Priority

Low production costs

Deliveryperformance

High-qualityproducts/services

Customer serviceand flexibility

HRMMarketing

FinanceOperations

ERP

• Enterprise

• Resource

• Planning

ERP – Key Point

• Common Database

benefits?

ERP Benefits

• Integration of Financial Data

• Standardization of Manufacturing Process

• Standardization of HR Information

Issues to Consider

ERP package will most likely not match current business process.

Cost is significant (average TCO = $15MM).Implementation Time can be long (1-3 years is

typical).No payback is typical until 8 months after

installation is complete.Average payback is $1.6MM/yr.

Problems and Budget Overruns

• Training (including business process)• Integration/Testing (add-on packages)• Data Conversion• Data Analysis (data warehousing)• Consultants (staff training)• Replacing your best and brightest• Implementation teams never stop• Waiting for ROI• Post ERP Depression (productivity drop)