3 - 2 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Operations
Management Framework Insert New Resource/Profit Model
Slide 3
3 - 3 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. C H A P T E R 3
Value, Strategy, and Capabilities L E A R N I N G O B J E C T I V E
S Describe the concepts of business-to-business (B2B) and
business-to-consumer (B2C). Define the concept of a supply chain.
Describe the value attributes common to B2B and B2C customers.
Describe the role of the strategies that form the strategy
hierarchy. Describe Porters three strategies. Define order winners,
order losers, and order qualifiers and relate them to value. List
and describe examples of strategic structural and infrastructural
decisions. List and describe the competitive priorities of
operations. Summarize the effects each strategic decision category
has on operations competitive priorities. Distinguish between
capabilities and processes. Compare the strengths and weaknesses of
process-oriented, product-oriented, and cellular layouts. Describe
the continuum of choices related to production volume and the
alternatives available for linking to customer demand. Describe
what is meant by a capability chain.
Slide 4
3 - 4 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Operations
Management Framework FOUNDATIONS FOR SUCCESS Value relative worth,
utility, or importance of something Profitability is also the
difference between the customers perception of value and the cost
of creating it Value has different meanings to different types of
customers Profitability Selling at a price greater than the cost of
producing a product or service Insert New Foundations for
Success
Slide 5
3 - 5 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Supply Chains A
supply chain encompasses all activities associated with the flow
and transformation of goods from the raw material stage
(extraction), through the end user, as well as the associated
information flows. Basic Producer ConvertersFabricatorsAssemblers
Support Services Transport Storage Finance, etc. Supply-Chain
Summary: It gets us from dirt to value
Slide 6
3 - 6 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Supply Chains
Basic Producer ConvertersFabricatorsAssemblers Support Services
Transport Storage Finance, etc. Basic Producer Mines, extracts or
harvests natural resources Converter Refines natural resources
Fabricator Converts refined materials into usable components
Assembler Assembles components into finished products
Slide 7
3 - 7 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Supply Chains
Exhibit 3.1 Generic Supply Chain Model
Slide 8
3 - 8 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Value Attributes
of Consumers Consumer Product (service) performance and benefits
Cost What does it cost for the total time of ownership? Quality
Does it meet my needs? Convenience How easy is it to get?
Timeliness How quickly can I get it?
Slide 9
3 - 9 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Value Attributes
of Consumers Consumer Product (service) performance and benefits
Personalization Will the business treat me as special? Do they know
me? Ethical Issues Is the business acting responsibly?Ethical
Issues Style/Fashion Is the product the most current style?
Technology Do I need technical skills to use this product?
Slide 10
3 - 10 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Value Attributes
of Business Customers Business Potential to add value to the
products or services they sell to other customers -Return on
investment is the key criterion Cost What does it cost for the
total time of ownership? Quality Does it meet our specifications?
Delivery Dependability Does the firm meet delivery promises?
Flexibility Can they adapt to special needs? Response Time How
quickly can they get it to us?
Slide 11
3 - 11 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Value Attributes
and the Marketing Interface Product -Quality -Technology -Ethical
Issues -Style/Fashion Price -Cost Place -Convenience -Response Time
-Delivery Dependability Promotion -Personalization -Flexibility
Selecting and Communicating these attributes is a Marketing issue.
Delivering on them is about Operations. Integration of the
functions is key to success.
Slide 12
3 - 12 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. The Value
Transfer Model Each participant in the supply chain must add some
value or risk disintermediation New technologies (e.g., internet)
increase the risk of disintermediation by reducing the cost of
obtaining information on alternatives Replace with new ex 3.5
Slide 13
3 - 13 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Operations
Management Framework A strategy is a pattern of decisions an
organization adopts in order to link resource decisions to goals
(Wheelwright 1984) -Its not what you say, its what you do
Successful strategy -The firm has made decisions that enable it to
continue providing that value at an acceptable cost (i.e.,
profitably) -Customers perceive value that is greater than that
offered by competitors Strategy A plan for being competitive Insert
new Foundations of Success
Slide 14
3 - 14 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. The Strategic
Hierarchy Corporate Strategy Business Strategy Operations
Strategy
Slide 15
3 - 15 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. The Strategic
Hierarchy Corporate Strategy -Broad and general in large
diversified companies -Sets expectations for business performance
Business Strategy -The general basis on which the business will
compete Cost Leader Differentiation Focus - Price lower than
competitors - Create unique products and services -Big chunk of a
small market, become very good at a small thing Think about
Business Strategy in terms of value attributes
Slide 16
3 - 16 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. One way to think
about business-level strategy Order Losers, Qualifiers, and Winners
Order Loser: a product or service characteristic that repels
customers. Order Qualifier: a product or service characteristic
that is necessary, but not sufficient to win the order. Order
Winner: a product or service characteristic most important to a
particular customer. Rotten food (quality) Able to make
cheeseburger plain (flexibility) Cool toy (style/fashion) Beware
Order Winners Becoming Order Qualifiers!! Example: Taking kids to
lunch on a Saturday afternoon. Cost Quality Response Time
Dependability Convenience Style/ Fashion Ethics Technology
Flexibility Personalization
Slide 17
3 - 17 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Cost Quality
Response Time Dependability Convenience Style/ Fashion Ethics
Technology Flexibility Personalization X X X X X Cost Quality
Response Time Dependability Flexibility Understand what is valued
in the market Choose which attributes to emphasize Prioritize those
attributes Design operations to support Business & Operations
Strategy The management of resources used to create saleable
products and services Definition of OM from class
Slide 18
3 - 18 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. The Strategic
Hierarchy Functional strategies must support one another as well as
the higher level strategies!! Operations Strategy -How to design
the operation -How to allocate productive resources
Slide 19
3 - 19 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Trek Configures
Operations to Add Value Operational decisions made by Trek to
support the firms value proposition -Emphasis on product design
based on customer input -Breaking bikes to figure out how to make
them better -High cost, high technology materials (carbon fiber)
-High technology manufacturing processes (plasma welding) -Flexible
manufacturing setup Small batches Modular design Hand assembly
-Empowered employees
Slide 20
3 - 20 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Structural vs.
Infrastructural Decisions Structural - Related to tangible
resources (buildings, equipment, process, supply-chain integration)
Examples -Capacity High vs. Low volume Equipment, Adding capacity,
Flexibility of capacity -Facilities Location, size, design, number
-Process Technology Layout, Automation -Vertical
Integration/Supplier Relationships Supplier links, partnerships,
integration vs. outsourcing
Slide 21
3 - 21 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Structural vs.
Infrastructural Decisions Infrastructural - Related to systems used
to enhance the utilization and control of structural resources
Examples -Human Resources Skill level, part vs. full time, salaries
-Quality Prevention vs detection, control, specifications, supplier
involvement -Planning & Control Inventory management, vendor
policies
Slide 22
3 - 22 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Structural vs.
Infrastructural Decisions Infrastructural - Related to systems used
to enhance the utilization and control of structural resources
Examples (continued) -New Product Development Sequential vs.
parallel activities, development team composition -Performance
measurement Team vs. individual incentives, types of measures,
types of rewards -Organization structure Organizational structure,
line and staff relationships
Slide 23
3 - 23 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Strategic
Decision Categories and Value Relationships Among Strategic
Decisions and Value Attributes
Slide 24
3 - 24 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Operations
Strategy Prioritize value attributes so resource decisions
(inventory, workforce, capacity, facilities, customer
relationships) match strategy.
Slide 25
3 - 25 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Value Attributes
and Competitive Priorities Value Attributes and Competitive
Priorities for Operations
Slide 26
3 - 26 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Summary of
Competitive Effects of Structural Decisions Insert Exhibit
3.10
Slide 27
3 - 27 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Summary of
Competitive Effects of Infrastructural Decisions Insert Exhibit
3.11
Slide 28
3 - 28 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Strategic
Objectives, Capabilities, and Process Requirements Marys Speedy
Pizza -Guaranteed Pizza Delivery in 20 minutes
Slide 29
3 - 29 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Reflecting On Our
Strategy Discussion - Order Qualifiers and Order Winners Mary looks
at Speedy delivery as an order winner -Organizes processes to
create capabilities that support that strategic objective Other
minimum expectations must also be met before customers consider
alternatives. -Taste & Temperature -Must develop process
supported capabilities in these areas as well Even though we are
talking about a product (pizza), the order winner is a service
(speedy delivery). Role of order qualifiers and order winners
change as markets mature. -What happens when everybody gets
fast?
Slide 30
3 - 30 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Capability Rules
Three principles about capabilities -No capability delivers
competitive advantage (i.e., acts as an order winner) forever -No
capability delivers competitive advantage alone -Because
capabilities rely on matching processes for support, competitive
advantage can be obtained by concurrent design of capabilities
along with products and processes
Slide 31
3 - 31 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Process Layout
Also Supports Product/ Service Delivery Layout as a strategic
decision -Type of equipment -Facility design -Employee attributes
Long-term cost implications -Tough to change Product-Oriented
Process-Oriented Cellular
Slide 32
3 - 32 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. General Layout
Decisions Product-oriented layout -Provides resources in a fixed
sequence -Matches the sequence of steps required to produce a
product or service -Common in high-volume manufacturing
Slide 33
3 - 33 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Product Oriented
Layout Advantages Efficient production of standardized goods and
services High processing speed Low cost per unit Disadvantages Lack
of flexibility or customization Employee boredom/ dissatisfaction
Quality problems
Slide 34
3 - 34 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Process Oriented
Layout Process-oriented (functional) Layout -Organized by function
-Steps completed in any sequence Advantages Flexibility and
customization Disadvantages Higher cost per unit Higher skilled,
high cost employees Transport/wait time between departments Less
consistency across products or services
Slide 35
3 - 35 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Product vs.
Process Layouts Transition from Process to Product Layout may be
triggered by age of the product Early in life-cycle -Not much
information on what customers want -Adopt process-orientation to
remain flexible and produce many varieties Late in life-cycle -Much
better understanding of what customers want -Shift to
product-orientation with fewer options
Slide 36
3 - 36 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Cellular Layouts
Cellular layouts -Mix of product and process layouts -Create
families of products with similar process requirements -Cell
contains all resources needed for family Advantages Flexibility
greater than product- oriented layout Less costly than
process-oriented layout Less material transport/wait Fewer
changeovers Disadvantages Duplication of resources
Slide 37
3 - 37 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Layout and
Product Attributes Process flow selection and the Product Process
Matrix -Tends to be process-oriented -Cellular?? -Tends to be
product-oriented
Slide 38
3 - 38 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Choices for
Manufacturers: The Product/Process Matrix Process Types Project
Unique, one-of-a-kind, products or customers. Generally large in
size (building a bridge, installing a software system, implementing
a major improvement effort) Job Shop Predominantly manufacturing,
high customization and flexibility, but higher volume than project.
Batch Production Groups of identical products or customers
processed together through one step and then moved together to the
next step. More limited product variety, higher production
volume.
Slide 39
3 - 39 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Choices for
Manufacturers: The Product/Process Matrix Process Types Assembly
Line Narrowly defined processes, made up of equipment with limited
flexibility. Much higher volume. Still the possibility of some
flexibility. Continuous (Repetitive) Processing Equipment and
workstations dedicated to a single thing. Very high volume. Very
low flexibility. Best chance for automation.
Slide 40
3 - 40 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Other Process
Choices Make-to-stock (MTS) -Process activated to meet expected or
forecast demand -Customer orders are served from target stocking
level -Shorter lead time for stocked items MUCH longer for out of
stock items Risk of obsolescence, shrink, etc. Make-to-order (MTO)
-Process activated in response to an actual order May be either
standard or custom product -WIP and finished goods inventory kept
to a minimum -Tends to have longer response time
Slide 41
3 - 41 McGraw-Hill/Irwin Operations Now, 2/e 2006 The
McGraw-Hill Companies, Inc., All Rights Reserved. Other Process
Choices Assemble-to-order (ATO) -Partially manufactured and held in
unfinished state -Customer order dictates final configuration
-Quicker response than MTO; More flexible than MTS