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OPSM 501: Operations Management
Session 3&4:
Strategic Fit
Process selection
Koç University Graduate School of BusinessMBA Program
Zeynep [email protected]
Shouldice HospitalVideo Case wrap-up
On what product attributes does Vestel Elektronik compete?
Firms compete on product attributes.This requires process capabilities.
Price (Cost) P Quality Q
– Customer service– Product quality
Time T– Rapid, reliable delivery– New product development
Variety V– Degree of customization
“order winners”
To deliver we need “capabilities”
Strategic Operational Audit
DesiredBusiness Strategy
Operations Strategy
DesiredCapabilities
Marketing, …, Financial Strategy
Desired Oper’l Structure:
Processes & Infrastructure
Product Attributes
P, T, Q, V
Process Attributes
C, T, Q, Flex
Existing Capabilities
Operational Structure:
Processes & Infrastructure
Existing Desired
FeasibleBusiness Strategies
Strategy Gap?
Measures
Capability Gap?
Process Gap?
What are process attributes at Vestel? How are these achieved?
Classification of Processes:by Customer Interface
SU
PP
LIE
R
CL
IEN
T
Make-to-Stock
Assemble-to-Order
Make-to-Order
Engineer-to-Order
Raw Material Components Semifinished Finished
Forecast Order
Competing on variety requires flexibility
Europe’s number 1, world’s number 2. OEM TV producer! 6% of World TV production.
Daily capacity: 50.000 TVs (average production 35.000/day)
20 parallel assembly lines Flexibility to produce 40 different brands-models
in a day 60% of orders for quantities less than 200 Direct deliveries to some chain stores in Europe
Where is Vestel Elektronik on the product-process matrix?
Industrialization 1: Standardizing
Process
Product
Flexible Job Shop
Batch Flow
Rigid Line Flow
High Customization
Some Customization
High Stardardization
Industrialization 2: Flexibility
Vestel
Process
Product
Flexible Job Shop
Batch Flow
Rigid Line Flow
High Customization
Some Customization
High Stardardization
Strategic Value Gained
Out of price!
Vestel Out of Fashion!
Process
Product
Flexible Job Shop
Batch Flow
Rigid Line Flow
High Customization
Some Customization
High Stardardization
Threats going forward?Strategy going forward?
The product-process matrix
Classification of Processesby process architecture
Project
Job Shop
Batch
Line Flow
Continuous Flow
Job Shop
Flow Shop
The Job Shop Process
Process Layout One of a Kind Build
– (To Customer Order)
Absence of Rigid Flow Pattern Usually High Product Mix
Process Layout
Lathe#Lathe#11
Lathe#Lathe#22
Lathe#Lathe#33
LatheLathe#4#4
Product #1735B: Start of Production
Drill Drill Press Press #1#1
Drill Drill Press Press #2#2
Paint Paint MachineMachine
Packaging Packaging Machine #1Machine #1
Packaging Packaging Machine #2Machine #2
Finish
Production
The Flow Line Process
Product Layout Discrete Parts Rigid Flow Pattern Product Mix of Standard Products
Product Layout
Product #1735B
LatheLatheStart
Production
Drill Drill Press #2Press #2 Paint MachinePaint Machine
Drill Drill Press #1Press #1
Packaging Machine #2Packaging Machine #2
Finish Production
What is innovative about Zara?
Zara Business Concept
Low Cost Focus on getting it
approximately correct Define a fast process Solve the material
constraint Constrain designers Optimize the offer Offer follow-up (next batch)
and create customer flows
Fashion Store experience Copy fashion Involve the customers and
his group Create a network/brand
Integrated fashion delivery: Fashion at low cost
Zara Customer Offer: Product/Process Attributes Quality:
– Raw Material: poor/OK
– Knit: poor
– Look: grand
– Customer satisfaction: fashion at low price
Cost:– Low monetary cost
– Low time cost “The Zara experience”
Time:– Fast copying of leading
styles
– Fast delivery in own stores
– Limited editions
Variety/Flexibility:– Limited product variety:
only what is on display
– Every customer is participating in the process
– Customer defines the next batch
Classical textile business process:12 month lead time
DesignPurchase
RMMfg Dist Sell Discount
Zara Business Process: 5 day lead time
1.Scan fashion shows
2.Simplify hits&
Library of designs
Purchase RM
2.Shoppers and store mgrs.PULL next designDesigners adapt
ShoppingExperience
3.Final design ofNext batch
.
Mfg Dist
The design process
Creative designPreliminary
designsFinal product
design
Final product design
Preliminary designs
Creative design
OutsourceAnd scan
Copy andsimplify
Adapt andoptimize
Traditional
Zara
Why is profitability in textile so low, when margins are so high?
Expected demand Actual demand
Perfect forecast
Excess demandExcess stock
Accurate Response
Improving Forecasts
0
500
1000
1500
2000
2500
3000
3500
4000
0 500 1000 1500 2000
Initial Forecast
Tot
al S
ales
Accurate Response
Improving Forecasts
0
500
1000
1500
2000
2500
3000
3500
4000
4500
0 500 1000 1500 2000 2500 3000 3500 4000
Updated Forecast, Incorporating 20% of Sales Data
Tot
al S
ales
Accurate Response
Improving Forecasts
0
500
1000
1500
2000
2500
3000
3500
4000
4500
0 500 1000 1500 2000 2500 3000 3500 4000
Updated Forecast, Incorporating 80% of Sales Data
Tot
al S
ales
Zara’a Approach to Demand uncertainty
Expected demand Actual demand
Small batches
Excess stock and unmet demand are avoided by stopping production when market saturates
Disruptive Technological Change
Time
Performance
Zara QualityFreshness
M&S Zara
Zara as a lean enterprise
Zara M&S
Clear focus on one customer type and one process
No focus, multiple and simultaneous goals
Unique and clear value prop. Confusion of implicit value proposition
Predictable process Unpredictable and fuzzy process
Strive for perfection Satisfied with threshold performance
Eliminate waste Tolerate some excess
Manage customer flows View customers as a sequence of tasks
Pull customers into process Pushes customers through the system
Industrialization 1: Standardizing
High Fashion
Marks &Spencer
Mass Merchants
Process
Product
Flexible Job Shop
Batch Flow
Rigid Line Flow
High Customization
Some Customization
High Stardardization
Industrialization 2: Flexibility
High Fashion
Zara Marks &Spencer
Mass Merchants
Process
Product
Flexible Job Shop
Batch Flow
Rigid Line Flow
High Customization
Some Customization
High Stardardization
Strategic Value Gained
High Fashion
Out of price!
Zara
Marks &Spencer
Out of Fashion!
Mass Merchants
Process
Product
Flexible Job Shop
Batch Flow
Rigid Line Flow
High Customization
Some Customization
High Stardardization
Key learnings from Operations Strategy module
Business model: customer segment and selected processes to match those segments’ needs
Product-process attributes: P, Q, T, V (C, Q, T, Flex) (what?)
Operating effectiveness (how well?) Product-process matrix Lean enterprise: focus, which allows clear value
proposition, perfection (optimization), elimination of waste, and focus on customer flows
Process competition: Shouldice, Vestel Elektronik, M&S, Zara
Announcements
We will play the house building game, see instruction slides that follow
Start reading The Goal Course TA: Beliz Keçelerli; Office Hours T-Th
11-12:30 or by appointment CAS Z52 [email protected]
KEEP DESKS CLEAR!
Only need a pen or pencil.Please keep desks and aisles
clear of notebooks, PCs, backpacks etc.
Please do not disturb materials!
HouseBuilding.com:Manufacturing Operations
Production Control(color sheets, log sheets, scissors)
(scissors)
Base Punch(scissors)
Final Assembly(tape)
Base Weld(stapler)
Quality Control
Customer
Roof Base Form
Production Control Operating Procedures
Prepare a batch of 4 units.– Cut each sheet (one at a time) into two: roof and base.– Write the batch number on the roof and the base. All items in the same batch have the
same number. The numbers have to match in assembly.– Repeat – 4 times, which yields one batch
When 4 units (one batch) are complete, “release” the batch.– Put the batch in your out-basket: it’s ready for pickup by the trucker.– Record release time for each batch.
Release one batch each minute.
Truckers Operating Procedures
Truckers are responsible for transporting work in process inventory between production steps.
You can carry only one batch of 4 roofs or 4 bases at a time. Not both!
Production Control(color sheets, log sheets, scissors)
(scissors)
Base Punch(scissors)
Final Assembly(tape)
Base Weld(stapler)
Quality Control
Customer
Roof Base Form(scissors)
Roof Operating Procedures
Cut the roof along double lines, one at a time. Fold roof along dotted line at top. Think quality! Work in batches of 4 units. When a batch is ready, call the trucker and send to
Final Assembly. Ask trucker for inputs when needed.
Base Punch (Cut) Operating Procedures
Cut the base along double lines, one at a time. Think quality! Work in batches of 4 units When a batch is ready, call the trucker and send to Base
Form. Ask trucker for inputs when needed.
Base Form Operating Procedures
Fold the lines on the base (4 folds). Work in batches of 4 units When a batch is ready, call the trucker to send them
to Base Weld. Ask trucker for inputs when needed
Base Weld Operating Procedures
Staple base on top and bottom about 0.5 cm from the edge. Work in batches of 4 units. When a batch is ready, call the trucker to send them to
Final Assembly. Ask trucker for inputs when needed.
Final Assembly Operating Procedures
Tape the roof to the base (2 tapes). Work in batches of 4 units. When a batch is ready, send them to QA. (No trucker
required.) Ask trucker for inputs when needed.
Quality Assurance Operating Procedures
Check each batch if they conform to quality standards!
If the house conforms to quality standards, put it on the market. Once on the market no more rework!
Customers can reject houses
Quality Standards
Batch numbers must match. Folds and cuts should be along
appropriate lines.– Folds should be crisp and cuts
should be straight. Roof should be centered and
door should be visible.– Top of base should be flush
with roof. Staples and tape should be
centered and parallel to the ground.– Not too much tape. About 1 cm– Staples about 0.5 cm from
edge.
House Game Overview
Quality Standards
Batch numbers must match. Folds and cuts should be along
appropriate lines.– Folds should be crisp and cuts
should be straight. Roof should be centered and
door should be visible.– Top of base should be flush
with roof. Staples and tape should be
centered and parallel to the ground.– Not too much tape. About 1
cm.– Staples about 0.5 cm from
edge.
Production Control(color sheets, log sheets, scissors)
(scissors)
Base Cut(scissors)
Final Assembly(tape)
Base Weld(stapler)
Quality Control
Customer
Roof Base Form(scissors)
HouseBuilding.com: Operational Performance
Flow time T
House # 1To - Ti = T
QualityQ = R/ Ro
InventoryI
OutputRo
InputRiHouse # 16
To - Ti = T
SalesR
Team(color)
