S. Chopra/Operations/Strategy 1

Operations Management:

Introduction & Strategy Module Introduction & Administrative Key Principles of Course

» Strategic role of Ops

» Process view of Ops

Strategies, Capabilities and Operations» Strategic Framework

» Wal-Mart

Aligning strategy and operations:» Shouldice Hospital

» Focus

» Wriston Manufacturing

S. Chopra/Operations/Strategy 2

Key Principle of course:1. The Strategic Role of Ops

“A company’s operations function is

either a competitive weapon

or

a corporate millstone.

It is seldom neutral.” [Skinner ‘69]

S. Chopra/Operations/Strategy 3

Key Principle of Course:2. The Process View of Ops

By rethinking the IBM Austin assembly plant and introducing cells, – distance traveled by a card was cut from 1.5 miles to 200

yards

– floor space was reduced to half

– production tripled with about the same number of workers.

[Chicago Tribune, July 1992]

S. Chopra/Operations/Strategy 4

Operations & the Process View:What is a Process?

Inputs OutputsGoods

Services

Labor & Capital

Informationstructure

Network ofActivities and Buffers

Flow units(customers, data, material, cash, etc.)

Resources

ProcessManagement

S. Chopra/Operations/Strategy 5

What defines a “good process”?Performance: Financial Measures

Absolute measures: – revenues, costs, operating income, net income

– Net Present Value (NPV) =

Relative measures:– ROI, ROE

– ROA =

Survival measure:– cash flow

Assets Total Average

TaxEBIT

T

tt

t

r

C

0 1

S. Chopra/Operations/Strategy 6

Firms compete on product attributes.This requires process competencies.

Product Attribute (External) Process Competency (Internal)

Cost Cost

Response time Flow time

Variety Flexibility

Quality Quality

S. Chopra/Operations/Strategy 7

Process Competencies are affected by Process Structure and Management

Process structure or architecture:– (1) inputs and outputs

– (2) flow unit (“jobs”)

– (3) network of activities & buffers» quantity & location

» precedence relationships

– (4) resource allocation» capacity & throughput

Operations Planning & Control Organization

S. Chopra/Operations/Strategy 8

What defines a good operation?Achieving alignment at FedEx

2006 2005 2004

Revenues 32,294 29,363 24,710

Income 3,014 2,471 1,440

S. Chopra/Operations/Strategy 9

A Strategic Framework for Operations

BusinessStrategy

DesiredCapabilities

Processes ResourcesOperationsStructure

S. Chopra/Operations/Strategy 10

What defines a good operation?Achieving alignment at IKEA

S. Chopra/Operations/Strategy 11

Shouldice Hospital

S. Chopra/Operations/Strategy 12

Wriston Manufacturing

S. Chopra/Operations/Strategy 13

Wriston ManufacturingBurden Rates (total overhead cost / direct labor cost)

0

1

2

3

4

5

6

7

Sanduski Detroit Lima Lebanon Saginaw Essex Tiffin Freemont Maysville

Free capacity and Throughput

0

20

40

60

80

100

120

140

160

Sanduski Detroit Lima Lebanon Saginaw Essex Tiffin Freemont Maysville

S. Chopra/Operations/Strategy 14

Focus and the FrontierIn the health-care sector

Cost efficiency

ResponsivenessWorld-classEmergency Room

World-class(non-emergency)Hospital

One generalfacility

operations frontier

S. Chopra/Operations/Strategy 15

Learning Objectives Operations & Strategy

An operation as a transformation process

Product Attributes / Operational Capabilities

Process Drivers / Operations structure

Link between business strategy, operations strategy, and operations structure

– Strategy vs. Operational Effectiveness

– Operational Focus