Operational Strategies

8/8/2019 Operational Strategies

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OPERATIONAL

STRATEGIES


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Operations strategy is ..

.thetotal patternofdecisions whichshapethe

long-termcapabilitiesofanytypeofoperationsandtheircontributiontotheoverallstrategy,throughthe

reconciliationofmarketrequirements withoperations

resources.


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Operations Strategy Designingthe

Operations Function


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Competitive Priorities- The

Edge FourImportant Operations Questions: Willyou

competeon

Cost?Quality?

Time?

Flexibility?

Alloftheabove? Some? Tradeoffs?


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CompetingonCost?

Typicallyhighvolume products

Oftenlimit productrange & offerlittle

customization

Mayinvestinautomationtoreduceunit

costs

Canuselowerskilllabor

Probablyuse productfocused layouts


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CompetingonQuality?

High performance design:

Superiorfeatures,high durability, & excellent

customerservice

Product & service consistency:

Meets designspecifications

Closetolerances

Errorfree delivery


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CompetingonTime?

Fast delivery:

Focused onshortertimebetweenorder

placementand delivery

On-time delivery:

Deliverproductexactly whenneeded every

time

Rapid development speed Usingconcurrent processestoshorten product

developmenttime


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CompetingonFlexibility?

Product flexibility:

Easilyswitch productionfromoneitemto

another

Easilycustomize product/servicetomeet

specificrequirementsofacustomer

Volume flexibility:

Abilitytoramp productionup and downto

matchmarket demands


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Are There Priority Tradeoffs?

Which prioritiesareOrder Qualifiers?

e.g. Must have excellent quality sinceeveryoneexpectsit

Which prioritiesareOrder Winners?e.g. Dellcompetesonallfourpriorities

Southwest Airlinescompetesoncost

McDonaldscompetesonconsistency

FedExcompetesonspeed

Customtailorscompeteonflexibility

Canyouhavebothhigh quality and low cost?

e.g. Yes,Cokeand Pepsiaregood examples

Canyouofferdesign flexibility and short delivery?

e.g. Yes,modularhousingmanufacturers doit


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SUPPLY CHAIN

A supplychainisthealignmentoffirmsthat

bring productsorservicestomarket.

A supplychainconsistsofallstagesinvolved, directlyorindirectly,infulfillinga

customerrequest. Thesupplychainnotonly

includesthemanufacturerand suppliers,but

alsotransporters, warehouses,retailers,andcustomersthemselves.


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A supplychainisanetworkoffacilitiesand

distributionoptionsthat performsthe

functionsofprocurementofmaterials,

transformationofthesematerialsinto

intermediateand finished products,and the

distributionofthesefinished productsto

customers.


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A generalized SCModel

Manufacturer

Distributor Retailer Customer

Distributor Retailer Customer

Retailer Customer

Retailer Customer

Supplier

Tier1

Supplier

Tier2

Supplier

Tier1

Supplier

Tier2

Raw Materials

Components

Distribution Tier1Distribution Tier2


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A SupplyChain Example

Did youeverwonderwhereatelevisioncomesfrom?

A varietyofcompaniesin differentcountries playaroleinbuilding

thecomponents,assemblingthe product,and movingitthrough

thesupplychain. Thegoalofthesupplychainistohavethe

televisionavailable whenyourereadyto purchaseitfromyour

favoritestoreorwebsite.

Display System

TV Control System

Internal + Remote

Signal Reception

System

Television

PowerSupply

System

Sound System

Sub-component

Manufacturers

Component

Manufacturers

Consumer

Electronics

Manufacturers

Circuit City

Bob's Wholesale TVs

Consumers

US ElectronicsDistributors LTD

BestBuy

TV Town

Distributors Retailers


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Whoarethe SC participants?

Suppliers arethesourceofraw materials,component parts,semi-manufactured products,and otheritems.

Manufacturers arethemakersofproducts.Manyconsiderthemtobethedriverorleaderdriverorleader ofthesupplychain.

Distributors areresponsibleforthe packaging,storing,and handlingofmaterialsatreceiving docks, warehouses,and retailoutlets.

Retailers arethemanufacturer'scustomers- thestoresand eCommercecompaniesthatbuytheactual products.

Consumers aretheultimate productusers- the people whobuytheproduct.

Manufacturing Distribution Retailer ConsumerSuppliers


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Importance/BenefitsofSCM

Toachieveeconomiesofscaleand scope Costs

aresignificant

Toimprovebusinessfocusand expertise

CustomerExpectationsareincreasing

Supplyand Distribution Linesarelengthening with

complexity

Adds SignificantC

ustomervalueCustomers Increasingly Want Quick & Customised

Response


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Toachieveeconomiesofscaleand scope Costsaresignificant

Internal SCfunctionslack economiesofscale whencompared with

the potentialcapacityofanindependent providerofthesame product/

service.

Eg:ComputerMonitor/Chip / Hard drive

Attractive pricing volumeleverage.

Toimprovebusinessfocusand expertise

Verticalintegrationmultipliesthecomplexitiesofmanaging

disparatebusinesses. Anindependentcompanythatfocusesentirelyona particularbusinesscan develop moreexpertisethananin-house

department

Ford divested theirIron Orecompany, SteelMilletc

HigherQuality, Attractive Pricingorboth


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C

ustomerExpectationsareincreasing

- Rapid processingofCustomerRequest

- Quick delivery (shorterOrderCycle Time)

- High degreeofProduct Availability

- LowerPrices

Supplyand Distributionlinesarelengthening withgreater

complexity

- Cutcostsand expand markets

- Trend towardsanintegrated world market- Designing productsforworld market & producingthem wherever

raw material,labour,components,overhead etcarelower

- Politicalarrangements: EuropeanUnion, ASEAN, SAARCetc

- Globalizationofindustries dependsonlogistic performanceand

cvosts


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AddssignificantC

ustomerValue-A productorserviceisofnovaluetothecustomer,ifnotavailablewhenrequired

Goodscustomers wantarenot produced wherethey wanttoconsume

OR goodsarenotaccessible whencustomers wanttoconsume

Value Through Responsibility

Form Convertingraw materials

and componentstothe

required Form, Fit &

Function

Engineering &

Manufacturing

Time Productionscheduling &

moving

Manufacturing & Logistics

Place Moving & making

transportable

Engineering & Logistics

Possession Advertising, Pricing,

Technical Support

Marketing, Finance &

Engineering


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Customers Increasingly want QuickCustomised Response

- Customersexpectthat products/servicescanbemadeavailable

inshortertimes. Guided by Fast Food, ATM, E-Mailetc.

- Improved IS and flexiblemanufacturing processeshaveled tomasscustomisation

- One Size Fit all philosophyisnotappreciated always

- Manufacturers/ Suppliersareoffering productsthatmeet

individualneeds


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Process View ofSupply Chain Management:Cyclic View

SCisasequenceofprocessesand flowsthattake place withinand between different SC

stagesand combinetofulfilacustomerneed fora product/service. These processesaredivided intoaseriesofcycles (cyclicview),each performed attheinterfacebetweentwo

successivestages/entitiesofSC.

Customer Order

Cycle

Replenishment

Cycle

Manufacturing

Cycle

Procurement

Cycle

Customer Arrival Customer Order Receiving

Customer Order FulfilmentCustomer Order Entry

Retail Order Trigger Retail Order Receiving

Retail Order FulfilmentRetail Order Entry

Order Arrival from D/R/C Receiving by D/R/C

Manufacturing & ShippingProductionScheduling

Order from Manufacturer Receiving at Manufacturer

RM /Comp. Mfg & ShippingSupplier Prodn Scheduling

Cycles Stage/EntityCustomer

Retailer

Distributor

Manufacturer

Supplier


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Push/Pull View ofSupplyChains

Procurement,Manufacturing andReplenishment cycles

Customer Order

Cycle

Customer

Order Arrives

PUSH PROCESSES PULL PROCESSES


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CustomerOrder

Cycle

Repl & Mfrg

Cycle

Procurement

Cycle

PUSH

Process

PULL

Process

LL Bean

Cust Order& MfrgCycle

Procurement

Cycle

PUSH

Process

PULL

Process

DELL

Customer order arrives

Customer order arrives

Process View of a Supply Chain: Push Pull View


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Supply Chain Drivers

Production

Inventory

Location Transportation

Information


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Production

referstothecapacityofasupplychaintomake

and store products.

fundamental decisionthatmanagersface when

making production decisionsishow toresolvethetrade-offbetweenresponsivenessand

efficiency


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Factoriescanbebuilttoaccommodate

oneoftwoapproachestomanufacturing:

Product focus

Functional focus


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Inventory

includeseverything fromraw materialto workin

processtofinished goodsthatareheld bythe

manufacturers, distributors,and retailersina

supplychain. Holdinglargeamountsofinventoryallowsa

companyoranentiresupplychaintobevery

responsivetofluctuationsincustomerdemand


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Componentsof Inventory Decisions Cycleinventory

Averageamountofinventoryused tosatisfy demand between

shipments

Dependsonlotsize

Safetyinventory

inventoryheld incase demand exceedsexpectations

costsofcarryingtoomuchinventoryversuscostoflosingsales

Seasonalinventory

inventorybuiltup tocounterpredictablevariabilityin demand

costofcarryingadditionalinventoryversuscostofflexibleproduction

Overalltrade-off: Responsivenessversusefficiency

moreinventory: greaterresponsivenessbutgreatercost

lessinventory: lowercostbutlowerresponsiveness


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Location

referstothegeographicalsitingofsupplychain

facilities.

Italsoincludesthe decisionsrelated to which

activitiesshould be performed ineachfacility

Location decisionshavestrongimpactsonthe

costand performancecharacteristicsofasupplychain


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Oncethesize,number,and locationof

facilitiesis determined,thatalso definesthe

numberofpossible pathsthrough which

productscanflow onthe waytothefinal

customer.

Location decisionsreflectacompanysbasic

strategyforbuildingand deliveringitsproductstomarket.


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Transportation

referstothemovementofeverythingfromraw

materialtofinished goodsbetween different

facilitiesinasupplychain


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Transportation: Rolein

the SupplyChain

Movesthe productbetweenstagesinthesupplychain

Impactonresponsivenessand efficiency

Fastertransportationallowsgreaterresponsivenessbutlowerefficiency

Alsoaffectsinventoryand facilities


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Transportation:

RoleintheCompetitive Strategy

Ifresponsivenessisastrategiccompetitive

priority,thenfastertransportationmodes

can providegreaterresponsivenessto

customers whoare willingto payforit Canalsouseslowertransportationmodes

forcustomers whose priorityis price (cost)

Canalsoconsiderbothinventoryand

transportationtofind therightbalance

Example 3.3: Laura Ashley


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Componentsof

Transportation Decisions

Modeoftransportation: air,truck,rail,ship, pipeline,electronic

transportation

varyincost,speed,sizeofshipment,flexibility

Routeand networkselection route: pathalong whicha productisshipped

network:collectionoflocationsand routes

In-houseoroutsource Overalltrade-off: Responsivenessversus

efficiency


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Information

Informationisthebasisupon whichtomake

decisionsregardingtheotherfoursupply

chain drivers

Itistheconnectionbetweenalloftheactivitiesand operationsinasupplychain


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Information

Roleinthesupplychain

Roleinthecompetitivestrategy

Componentsofinformation decisions


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Componentsof Information Decisions

Push (MRP)versus pull (demand informationtransmitted quicklythroughoutthesupplychain)

Coordinationand informationsharing Forecastingand aggregate planning

Enablingtechnologies EDI

Internet ERP systems

SupplyChainManagementsoftware

Overalltrade-off: Responsivenessversusefficiency


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Logistics Management

'Logistics is the process of strategically managingthe procurement, movement and storage of materials

(and related information flows) through the

organisation and its marketing channels


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Logistics is the support element of the enterprise. It

helps in managing the movement and storage of:

Material into the enterprise.

Goods in the enterprise.

Finished goods from the enterprise.


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FUNCTIONS OF LOGISTICS

Facility of location & Network design

Information management

Transportation management

Inventory management

Warehousing management

Material Handling system

Packaging


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THREE CATEGORIES OF LOGISTICS

1. Subsistence logistics

2. Operation logistics

3. System logistics.


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VALUE-ADDED ROLE OF LOGISTICS

Form Utility

Place Utility

Time Utility

Possession Utility


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LOGISTICS FOR COMPETITIVE

ADVANTAGE

Three Cs

company,

customers

competitors

PRODUCTIVITY ADVANTAGE

VALUE ADVANTAGE


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Thank you

Documents

Operational Strategies