An Overview of Operations Strategy Revised Jan 08[1]

8/6/2019 An Overview of Operations Strategy Revised Jan 08[1]

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An Overview of OperationsStrategy

Operations Management


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Basic Definition of OM

The effective management of value-adding transformation processes toefficiently integrate resources andachieve specified performance measurestowards product/service, technology, and

market goals.


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Definition Expansion

Effective : doing the job right andmaximizing impact;Efficient : getting the job done rightwith minimum waste;Value-adding transformation

processes : converting inputs tooutputs valued by the customer;


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Definition Expansion

Contd.Integrate resources : selection and allocationof resources to enhance service value;

Achieve performance targets : achievementof standards for time, cost quality, delivery,and flexibility;Goals : the contribution to the goals of the

organization stated in product/service,technology, and market terms.


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Planning Levels in OMStrategic (Long-term)How will we make the product?Where will facilities be located?

What is the maximum capacity? Tactical (Medium-term)

How many workers do we need?When do we need them?

What is our production and inventory policyover the medium term?Operational (Short-term)

What jobs do we work on today?

How are jobs scheduled and allocated?


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Basic Structure of

Operations

Transformation

Feedback

InputsOutputs


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Factors Impacting OMCorporate strategyGlobalization/Competition

Technological advancesCustomer/Supplier Intimacy

Human capacityPolitical & economic climate


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What is Strategy

The current domain of resourcecommitments to transformationprocesses and plannedimprovements, as a means to achievethe distinctive competence and goalsof the firm.


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Operations StrategyOM strategy is concerned with the long-term configuration of an organizationsproductive resources to bring about

synergy with between operations andcorporate goals and objectives.As such the OM strategy must be alignedto the business and corporate strategy of the organization.


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Porters Generic Value

Chain


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What is Strategy? M.

PorterStrategy is the creation of a unique andvaluable position involving a different set

of activitiesStrategy requires that you make trade-offs in competing-choose what not to doStrategy involves creating fit among acompanys activities


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What is Strategy? M.

PorterOperational effectiveness is notstrategy. It is necessary but notsufficientAt general managements core isstrategy: defining a companys

position, making trade-offs, andforging fit among activities


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Manufacturing Missing Link

(W. Skinner)Manufacturing can be a competitive weapon ormillstoneManufacturing is often isolated from the

corporate strategy table There is a mismatch between competitivestrategy and the organization of manufacturing

The sense of technical inadequacy on the partof top executives alienates manufacturing

There is a lack of awareness that manufacturinginvolves trade-offs


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Strategic ImplicationsDemand

Market 1

Large lotsSpecialized facilitiesLow-medium skilled workersConcentration of manufacturing

Decentralized finished goodsReadily available product Rock-bottom costs

Market 2

Quick response (small lots)Focus on reducing lead timesHighly-skilled workersGeneral purpose equipment

Many modelsMake to order Very high quality


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Manufacturing Missing Link

(W. Skinner) Trade-offs exists in several manufacturingdimensions

Plant and equipment

Production planning and controlLabor and staffingProduct design/engineeringOrganization and management

Supply chain managementQuality and service

Manufacturing policy must be driven bycorporate strategy through a systematic

process


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10 Decision Areas of OMGoods & service design

QualityProcess & capacity design

Location selectionLayout design

Human resource and job design

Supply-chain managementInventory

SchedulingMaintenance


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Key Learning Points FromSkinner

There is an implicit or explicit operations strategy in allorganizations

The operations strategy defines the deliberateorganization of operations resources in support of corporate strategy

There is a divide between corporate and manufacturingIt is critical that corporate strategy formulation takesinto consideration the operations system

The operations strategy involves trade-offs on severaldimensionsA mismatch between the OS and corporate strategy canlead to failure


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Operations-Based Strategy(Hayes and Upton)

Operations can provide companies with themeans of competitive attack and

competitive defenseAustralian Paper Manufacturers sought to makesmooth paper better than is competitor(Australian Pulp and paper Mills)Crown competed on design innovation andflexibility in design make forklift trucks lookattractiveSouthwest competed on cost and reliabilityWalMart competed on cost from leveragingsupply-chain efficiency through technology


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Operations can be used in the followingways:

Positioning: Appealing to a different need (Wal-

Mart, Southwest, CanJet, Crown Equipment)Capabilities: Being better at the same game

(Taco Bell vs. McDonalds, Wal-Marts use of IT)Process-based capabilitiesSystems-based capabilities (Cost accounting,knowledge management)Organization-based capabilities (setting up newplants, design and introduction of new products)


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Operations-based advantages are difficultto replicate - they require major changeefforts and realignment of systems andprocesses

There is a need for trade-offs andoperations-based innovations can altertrade-offs ( e.g. JIT and setup timereduction )Operations-based strategies are dynamicand emergent in character - ( they evolvethrough experimentation and learning )


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Some summative commentsOperations-based capabilities cannot be developedquickly and cant be bought off-the-shelf

The fact that OBCs take long to develop and cancome together quite suddenly provides advantageEffective attackers are quick to recognize operatingweaknessesEffective defenders are quick to recognize latentthreatsA critical success factor is the ability to learn and becreative (awareness, analysis, and action)While it may be good to emulate best practice, bestpractices can be constraining - new practices shouldbe sought


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Manufacturing StrategicPlanning (Garvin)

CorporateStrategy BusinessStrategy ManufacturingStrategy

ManufacturingPolicies

Capacity Facilities Technology Structure

Quality Production Human ResourcesInfrastructure

A Model of Manufacturing Strategy

Evaluation & Feedback


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Current Model of Mfg.Strategy


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Current Model of Mfg.Strategy


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Shortcomings of Skinners model There is insufficient detail to guide the bestallocation of resources

Manufacturing improvements are not always carrieddown to the lowest level of the organization The process is fairly static. There is little incentiveto improve once the policies are defined (but theyare rarely defined correctly to begin with)

The four strategic priorities are very aggregated andhave multiple possible interpretations


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RecommendationsIntroduce Strategic Manufacturing Initiatives(SMIs)

SMIs drive improvement and they are inherentlydynamicSMIs are targeted and ranked from a broad possiblearray of initiatives

They help to link policies to strategic priorities

(much the same way that a strategy is the linkbetween an objective and a goal) They are the locus of activity for driving continuousimprovement


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Expanded StrategyProcess

Disaggregation of competitivepriorities (see Table 1.) (cost, quality,delivery, flexibility, service)Decomposition identifying causeand effect relationships

Translation identify dominant causalelementsEvaluation (criteria: leverage,capabilities, implementation)

Final selection


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Steps for Developing aManufacturing Strategy

Establish the corporate strategyEstablish the business units strategy(competitive strategy, products, services,markets, etc.)Identify strategic priorities (cost, quality,flexibility, delivery, service)Disaggregate strategic priorities; e.g.

CostInitial costOperating costMaintenance cost


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Manufacturing StrategyFormation (D. Barnes)

BusinessStrategyContent

ManufacturingStrategyContent

OwnershipForces

ExternalForces

InternalContext

ExternalContext


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Business strategy contentDirection and scope of the organizations activities

Manufacturing strategy contentRealized manufacturing decisions & policies (structuraland infrastructural)

External factorsFactors that affect business and manufacturing strategy(customers, markets, competitors, etc.)

Ownership factorsAttitudes of owners on business strategy (financialgoals, corporate citizenry)


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Internal context The firms resources, capabilities, culture,

politics, leadership, managerial competence,etc.External context

Political, economic, social, technological forcesin the wider business environment


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Classification of OM strategy formationDeliberate: derived from a previously determined andclearly articulated set of actions. Follows a logicalsequential process.Emergent: Realized in an evolutionary but purposefulmanner. Uses an iterative and adaptive processinvolving trial and error.Cultural: Realization of strategy influenced by thecultural aspect of the organization; its history, valuesand beliefs, and assumptions of its members.Political: realized through a political process of bargaining and negotiation based on power structuresin the organization.Command: Realized by the control of a powerful

individual.


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Research findings showed that deliberateand emergent strategy formation were

quite prevalent


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Strategy and Issues During aProducts Life

Introduction Growth Maturity Decline

StandardizationLess rapid productchanges - moreminor changes

Optimum capacityIncreasingstability of process

Long productionrunsProductimprovement andcost cutting

Little productdifferentiation

Cost

minimizationOvercapacity inthe industry

Prune line toeliminate itemsnot returninggood margin

Reduce capacity

Forecasting criticalProduct andprocess reliability

Competitiveproductimprovements andoptionsIncrease capacityShift towardproduct focusedEnhancedistribution

Product design anddevelopment critical

Frequent productand process designchanges

Short productionruns

High productioncosts

Limited models

Attention to quality

Best period toincreasemarket shareR&D productengineeringcritical

Practical tochange price orquality image

Strengthenniche

Costcontrolcritical

Poor time tochange image,price, or qualityCompetitive costsbecome criticalDefend marketposition

OM

Strategy/ Issue

s

Company

Strategy/Issues

HDTV

CD-ROM

Color copiers

Drive-thrurestaurants

Faxmachines

StationwagonsSales

3 1/2Floppydisks

Internet

Strategy & Issues During Product


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Best period to increase market shareR&D engineering are critical

Product design and development are criticalFrequent product and process design

changesOver-capacityShort production runsHigh skilled-labor content

High production costsLimited number of modelsUtmost attention to qualityQuick elimination of market-revealed design

defects

Introduction

Strategy & Issues During ProductLife

CompanyStrategy& Issues

OMStrategy& Issues

ra egy ssues ur ng ro uc


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ra egy ssues ur ng ro ucife

Practical to change prices or qualityimage

Marketing is criticalStrengthen niche

Forecasting is criticalProduct and process reliability

Competitive product improvementsand optionsShift toward product orientedEnhance distribution

CompanyStrategy

& Issues

OM Strategy

& Issues

Growth


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Life

Poor time to increase market shareCompetitive costs become criticalPoor time to change price, image, or qualityDefend position via fresh promotional and

distribution approaches

StandardizationLess rapid product changes and more minor

annual model changesOptimum capacityIncreasing stability of manufacturing processLower labor skillsLong production runsAttention to product improvement and cost

cuttingRe-examination of necessity of design

compromises

CompanyStrategy

& Issues

OM Strategy& Issues

Maturity

Strategy & Issues During Product


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Strategy & Issues During ProductLife

Cost control critical to market share

Little product differentiationCost minimizationOvercapacity in the industry

Prune line to eliminate items notreturningGood marginReduce capacity

CompanyStrategy

& Issues

OM Strategy

& Issues

Decline


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Strategic Service VisionOperating Strategy

What are important elements of the strategy:operations, financing, marketing, organization,human resources, control?

On which will the most effort be concentrated?Where will investments be made?How will quality and cost be controlled:measures, incentives, rewards?

What results will be expected versuscompetition in terms of, quality of service, costprofile, productivity, morale/loyalty of servers?


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Summary of OperationsStrategy Formulation

Identify market segmentsEstablish the firms Value Proposition for each marketsegmentIdentify External Performance Objectives

Order winnersOrder qualifiers

Assess current performancePerform a SWOT analysis on the Operations value chainand Identify Internal Performance ObjectivesEstablish Operations policies/strategies to achieveinternal and external performance objectivesDevelop an improvement plan and implement itMonitor, review, and update the plan


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Value Proposition

Value = Product/Service Attributes +Image

+ Relationships

Functionality Quality Price Time


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External PerformanceObjectives The needs of customers (critical successfactors) that the firm must satisfyOrder Winning Criteria : Factors thatdirectly contribute to gaining morebusiness and which are regarded by thecustomer as key to competitivenessOrder Qualifying Criteria : Factors whichthe firm must have in place before acustomer will even consider doingbusiness with the firm.


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Service Purchase DecisionService Purchase Decision

Service Qualifier : To be taken seriously acertain level must be attained on thecompetitive dimension, as defined by othermarket players. Examples are cleanlinessfor a fast food restaurant or safe aircraft foran airline.Service Winner : The competitive dimensionused to make the final choice amongcompetitors. Example is price.


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Service Purchase Decision(cont.)Service Purchase Decision(cont.)

Service Loser : Failure to deliver ator above the expected level for a

competitive dimension. Examplesare failure to repair auto(dependability), rude treatment

(personalization) or late delivery of package (speed).


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Identifying Criteria

Order Winners1. Provide a critical advantage with

customers the main factor drivingcompetitiveness2. Provide an important advantage with most

customers factor always considered

3. Provide a useful advantage with mostcustomers factor usually considered


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Order Qualifiers4. Need to be at least up to good

industry standard5. Need to be around the median

industry standard

6. Need to be within a close range of the industry


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Less Important Criteria7. Not usually considered, but could

become important in the future8. Very rarely considered by the

customer

9. Never considered and not likely tobe considered


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Judging Performance1. Consistently and clearly better than our nearest

competitor2. Consistently and considerably better than our

nearest competitor

3. Often marginally better than our nearestcompetitor4. Often marginally better than most competitors5. About the same as most competitors6. Often within striking distance of the main

competitors7. Usually marginally worse than main competitors8. Usually worse than most competitors9. Consistently worse than most competitors


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Source: A.T. Joseph (1999) Formulation of Manufacturing Strategy , AMT, vol. 15, 522-535

x erna er ormance


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x erna er ormanceObjectives: CompetitivePriorities

Quality : Make things rightDelivery

Speed : Make things fast

Dependability : Make things on timeFlexibility : Have the ability to change whatis made and how much of what is made

Cost : Make things cheap

Service and After-sales Support : Make iteasy to use the productInnovation : Make new things timely


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Competitive Priorities forServiceCompetitive Priorities forService

Availability (24 hour ATM)Convenience (Site location)Dependability (On-time performance)Personalization (Know customers name)Price (Quality surrogate)Quality (Perceptions important)Reputation (Word-of-mouth)Safety (Customer well-being)Speed (Avoid excessive waiting)


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Dimensions of COST

Initial cost - cost or price of purchasing a product

Operating cost - cost of using aproduct over its life timeMaintenance cost the cost of maintaining a product over itslifetime


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Dimensions of QualityPerformance: Primary operating characteristics(picture, sound, etc.)Features: The secondary characteristics of a

product or serviceReliability: The probability that a product willfail within a specified time periodConformance: The degree to which the productor service meets pre-established standardsDurability: The amount of use a product cansustain before deterioration or until repair is nolonger economical


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Dimensions of QualityServiceability: The speed, courtesy, andcompetence of repair

Aesthetics: The look, feel, taste, smell, and sound of a product or servicePerceived Quality: The impact of brand name,company image and advertising


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Dimensions of Delivery Accuracy: Whether the correct itemswere shippedCompleteness: Whether shipments

were filled completelyDependability : Whether product wasdelivered by the agreed to date

Availability : Likelihood an item isavailable when neededSpeed : The elapsed time betweenorder and delivery


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Dimensions of DeliveryInformation Accessibility: The degree to which real-timeinformation is available on a shipmentQuality: The condition of the product after shipment

Ease of Ordering : How easy it is to place an orderOrdering Flexibility : Whether there are limits on varietyand volume of the product that can be orderedShipment Flexibility : The ability to reroute orders in orderto accommodate a special circumstance

Ease of Return : The willingness to absorb the cost of returning an item


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Dimensions of FlexibilityVolume Flexibility

Uncertain forecasts: The ability torespond to sudden changes in productdemand due to market forcesRamp-ups: speed with which theproduction system can be scaled

Process Flexibility

Mix flexibility: The ability to manufacturea variety of productsChange-over flexibility: The ability toadjust smoothly to changes in productmix


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Dimensions of FlexibilityProcess Flexibility

Rerouting flexibility: The degree towhich the sequence of operations can

be modifiedMaterial flexibility: The ability toaccommodate variations in raw materialand raw material substitutions.Sequencing flexibility: The ability torearrange the order in which parts arefed into the Operations process


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Dimensions of ServiceCustomer Support: The ability to providecustomers with quick responses to theconcerns.Sales support: The ability to enhance salesand marketing by showcasing the product inactionProblem Solving: The ability to assist bothinternal and external customers in problem

solvingInformation: The ability to furnish criticaldata on product performance, processparameters, costs to internal groups, etc.

x erna er ormance


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e a e o a ceObjectives For South WestAirlines

Order Winning Criteria :Low cost

ReliabilityOrder Qualifying Criteria :

Dependability

SafetyService


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The companys valuechain must be designed

to support itscompetitive priorities!


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10 Decision Areas of OM

Goods & service designQuality

Process & capacity designLocation selection

Layout designHuman resource and job design

Supply-chain managementInventory

SchedulingMaintenance


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Operations Value Chain(Infrastructure)

Plant and EquipmentSpan of the processPlant size/capacityPlant locationChoice of equipmentKind of tooling

Investment in facilities, equipment, andresearchLevel of automationSpecialization (focus)


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Operations InfrastructureProduction Planning and Control

Production quantities/batch sizes Job-machine assignment

Inventory levelsInventory control

Human Resources

Skill levelWage policies

TrainingSupervision


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Operations InfrastructureProduct Design/Engineering

Number of productsDesign stability

Risk toleranceOrganization and Management

Structure (centralized vs. decentralized)Management competenceOrganizational cultureUse of teamsControl/rewards systems


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Operations InfrastructureQuality

MethodsMeasurementMonitoring

SourcingNumber of suppliers

Relationship with suppliers(investment)Level of integration of informationsystems


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Operations InfrastructureVertical Integration

DirectionExtent

SourcingNumber of suppliersRelationship with suppliers(investment)Level of integration of informationsystems


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Service Design ElementsService Design Elements

Structural:Delivery system (front & back office)Facility design (aesthetics, layout)Location (competition, site characteristics)Capacity planning (number of servers)

ManagerialService encounter (culture, empowerment)Quality (measurement, guarantee)

Managing capacity and demand (queues)Information (data collection, resource)

Internal Performance


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Internal PerformanceObjectives

Internal objectives refers to theperformance objectives for internalunits which will drive the achievementof external objectivesInternal objectives are derived byexamining the choices available in each

area of the value chain and identifyingappropriate objectives that will supportthe external objectives (A SWOTanalysis can be very useful in

Documents

An Overview of Operations Strategy Revised Jan 08[1]