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Outline

OPERATIONS STRATEGY

Chapter 2

1. 2. 3. 4. 5.

Operations Strategy Model Emphasis on Operations Objectives Linking Strategies Operations Competence Global Scope of Operations

Operations Strategy
Operation Strategy is concerned with the development of long term plan for determining how to best utilize the major resources of the firm so that there is high degree of compatibility between these resources and firms long term goal.

Operations Strategy Model


(Figure 2.1)

Corporate strategy

Business strategy

Operations Strategy Internal analysis Mission Distinctive Competence External analysis Objectives (cost, quality, flexibility, delivery) Policies (process, quality systems, capacity, and inventory) Functional strategies in marketing, finance, engineering, human resources, and information systems

Consistent pattern of decisions Results

Corporate Strategy
Defines what business the company is in.

Business Strategies

Business Strategy
How the a particular business will compete.

Cost Leadership Low cost item Differentiation New Development

External Analysis
External environment includes
Competition (Global Competition) Customer (Changing attitude of customers) Economics (Inflation rates, currency fluctuations) Social Conditions (Social awareness, Changing demands of workforce labours not servants)

Internal Environment
Internal Environment includes
Availability of Resources Skills and ability of workforce Location (Place) Control Systems SWOT Analysis

PEST Analysis

Operation Mission
What we want to do Defines the purpose of operation function with respect to business and corporate strategies Giving the priority among the operation objectives
Cost Quality Delivery Flexibility

Distinctive Competence
Something an organization does better than any competing organization that adds value for the customer.

Distinctiveness Competence
Leads to
Competitive Advantage Not easily to intimate (Copy) Requires operations to concentrate on what it must do Distinctiveness Can be Skilled Workers Cheap labour

Operations Strategic Objectives


Results that operation is expected to achieve in short or long term goal Quality-Customer Satisfaction Measurement Flexibility New Product Development Time to make large number of products Delivery-when and where the customer need the product or service Time Reliability Cost efficiency Lower cost products How does a firm use them to gain a competitive advantage

Operations Policies
How the objectives of the operation achieved. Operation Policy should be developed for each of the five decision categories Quality Process Capacity Inventory Work Force Policy can emphasis on Highly skilled work force Develop a superior control system

Examples of Important Policies in Operations (Table 2.2)


Policy Type

Process

Policy Area Span of process Automation Process flow Job specialization Supervision Approach Training Suppliers Facility size Location Investment Amount Distribution Control Systems

Strategic Choices Make or buy Handmade or machinemade Flexible or specialized Project, batch, line, or continuous Centralized or empowered workers Prevention or inspection Technical or managerial training Selected on quality or cost One large or several small facilities Near markets, labor, or materials Permanent or temporary High or low levels of inventory Centralized or decentralized warehouses Control in great detail or less detail

Quality Systems Capacity

Inventory

Policy types = decisions in Chapter 1.

Linking Operations to Business Strategies


Business strategy alternatives Product imitator Operations must focus on keeping costs low. (generic drugs, general products) Product innovator Operations must maintain flexibility in processes, labor and suppliers. Order qualifiers and Winners Qualifiers: why you consider the product Winners: why you choose the product

Operations Competence

To be sustainable, distinctive competence must not only be unique, it must be difficult to imitate or copy.

Examples of Operations Distinctive Competence

Strategy Formulation
Defining a Primary Task What is the firm in the business of doing. Example: Amazon-Fastest, Easiest and most Enjoyable Shopping Experience. Paramount-Business of Communication: Not Making Movies. Core Competence What does the firm do better than others Order Qualifiers What qualifies an item to be considered for purchase Order Winners What wins the order Positioning of the Firm
How will firm compete- Where we will serve

Skills of employees Equipment or processes Rapid continuous improvement Well developed partnerships Location Organizational knowledge Proprietary information or control systems

Competitive Priorities
Competing on Cost Elimination of Waste e.g. Wall Mart, Southwest Airlines Quality Minimizing defect rates, meet the requirements of design Flexibility Is the ability to adjust to changes-high volume of existing, new product development Speed Fast delivery. e.g. Dell, Wall Mart

Strategic Decisions
Products and Services Process and Technology Capacities and Facilities Human Resource Quality Sourcing Operating Systems

Strategic Decision in Operations


Products and Services Types of Products and Services Make To Order -Products and Services are made to Customers Specification after an order has been received. E.g. Professional Services, Customized Products or Services . Make To Stock- Products and Services are made in anticipation of demand. e.g. Books, Fast Consumer Goods. Assemble To Order -Products and Services add options according to Customer Specification. E.g. Computer Systems, Corporate Training etc.

Process and Technology


Project-One at a time production of a product to Customer order Shipbuilding, Construction Project, New Product Development etc. Batch-System process many different jobs at the same time in group or batches. Bakeries, Education, Furniture Making. Mass Production-Produces large volumes of a standard product for a mass market. PCs, TV, Fast Food. Continuous Production-Used for very high volume products. Refined oil, Water Plant. For Services, Professional Service (Doctors, Consulting), Service Shop (Professor Classroom ), Mass Service (Retail Store) , Service Factory (Electricity)

Sourcing
Vertical Integration
Is the degree to which a firm produces the parts that go into its products. Outsourcing

Stages in Integration of Operation Strategy to the Corporate goals Manufacturing Organization


Internally Neutral (Stage 1) Minimizing manufacturing negative potential. Outside experts hired for strategic manufacturing decisions. Manufacturing is kept flexible and reactive. Externally Neutral (Stage 2) Achieve parity (matching) with competitors. Industry practice is followed. Capital investment for catching up competition. Internally Supportive (Stage 3) Provide credible support to business strategy. Manufacturing investments are consistent & long term goals are addressed. Externally Supportive (Stage 4) Pursue a manufacturing based competitive edge. Long range programs for acquiring capabilities of future (Proactive).

Stage 1:Internally Neutral


At this stage the operations function is attempting to reach a certain minimum standard. It is seen as a hindrance in the delivery of competitive advantage by the other business functions. Its focus is on avoiding mistakes so it tends to be inward-looking and is reactive. The bad publicity that comes from organizations being let down by their operations can be damaging.

Stage 2: External Neutrality

Here the operations function compares its performance with competitor organizations. Benchmarking its performance against its competitors enables it to identify the best ideas to copy. In trying to match the benchmarks it has identified, the operations function is attempting to be externally neutral.

Stage 3: Internally supportive


At Stage 3 operations are broadly up there with the best but have aspirations to continue to improve and be the very best in the market. The operations function has developed appropriate operations processes and resources to excel in those areas in which the company needs to compete effectively. The internally supportive element comes from the development of a credible operations strategy which supports the corporate strategy.

Stage 4: Externally supportive


At this level the operations function is playing a lead role in strategy-making and is forming the foundation for future competitive success. It might be doing so by organizing resources in innovative ways or in designing in flexibility so it is capable of adapting as markets change. At stage 4 a long term perspective is taken and capabilities developed that will enable the organization to compete in future market conditions. It is about redefining the market and its expectations.

The Strategic Role of the Operations Functions

What is the role of the operations function?


Operations as effector
Strategy

The 3 key attributes of operations

Operations Contribution

Operations as follower
Strategy

Operations as leader
Ops

Implementing

be Dependable Operationalise (to put something to use or into operation) strategy be Appropriate Understand strategy Contribute to decisions

Supporting
Ops Ops Strategy

Operations implements strategy

Operations supports strategy

Operations drives strategy

Driving

be Innovative provide Foundation of strategy Develop long-term Capabilities

Hayes and Wheelwrights Four Stage model


1. 2. 3. 4. Internally Neutral Externally Neutral Internally Supportive Externally Supportive

How can the contribution of the operations function be assessed?


Neutral Supportive

Stage 1

Stage 3 Objective is for operations to provide credible support for the business strategy. Stage 4 Objective is for operations to provide a source of competitive advantage.

Internally

Objective is to minimize the negative impact of operations. Stage 2

Externally

Objective is for operations to help the business maintain parity with its competitors.

The strategic role of operations can be defined


(Hayes and Wheelwright) Give an Operations Advantage Link Strategy With Operations Be as good as competitors Stop holding the organisation back STAGE 1
The ability to Implement

Issues and Trends in Operations


Externally supportive

Redefine the industrys expectations Be clearly the best in the industry

Internally supportive

Global Markets, Global Sourcing, Global Operations Virtual Companies Business organization collaborates with one another Strategic alliances Organizations Boundaries are hard to define Emphasis on Service
Manufacturing & Service Companies both concentrate on service delivery

Adopt best Practice

Externally neutral

Speed and Flexibility


Speed of innovation, delivery, communication, information

Correct the Worst Problems

Internally neutral STAGE 2 STAGE 3 STAGE 4


The ability to Drive strategy

Supply Chain
Managing the supply chain, virtual integration

The ability to support Strategy

Issues and Trends in Operations (contd)


C-Commerce
When business partners share data, collaborate on design issues, synchronize activities. Reduce time to market, economies of scale, purchasing cost etc.

Competitiveness:
How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

Technological Advancements
IT, Telecom, e-Commerce etc

Knowledge
R&D, Learn from the mistakes, learn outside the organization.

Environment and Social Responsibility


Impact on environment, social awareness.

Businesses Compete Using Marketing


Identifying consumer wants and needs Pricing Advertising and promotion

Businesses Compete Using Operations


Product and service design Cost Location Quality Quick response

Businesses Compete Using Operations


Flexibility Inventory management Supply chain management Service

Why Some Organizations Fail


Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Failing to recognize competitive threats Neglecting operations strategy

Why Some Organizations Fail


Too much emphasis in product and service design and not enough on improvement Neglecting investments in capital and human resources Failing to establish good internal communications Failing to consider customer wants and needs

Mission/Strategy/Tactics
Mission Strategy Tactics

How does mission, strategies and tactics relate to decision making and distinctive competencies?

Strategy
Strategies
Plans for achieving organizational goals

Planning and Decision Making


Mission Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies

Mission
The reason for existence for an organization

Mission Statement
Answers the question What business are we in?

Goals
Provide detail and scope of mission

Tactics Operating procedures

Tactics Operating procedures

Tactics Operating procedures

Tactics
The methods and actions taken to accomplish strategies

Strategy Example
Rita is a high school student. She would like to have a career in business, have a good job, and earn enough income to live comfortably Live a good life Mission: Goal: Successful career, good income Strategy: Obtain a college Education Tactics: Select a college and a major Operations: Register, buy books, take courses, study, graduate, get job

Examples of Strategies
Low cost Scale-based strategies Specialization Flexible operations High quality Service

Strategy and Tactics


Distinctive Competencies
The special attributes or abilities that give an organization a competitive edge. Price Quality Time Flexibility Service Location

Examples of Distinctive Competencies


Price Quality Time Flexibility Service Location
Low Cost U.S. first-class postage Motel-6, Red Roof Inns High-performance design Sony TV or high quality Consistent Lexus, Cadillac quality Pepsi, Kodak, Motorola Rapid delivery On-time delivery Variety Volume Superior customer service Convenience Express Mail, Fedex, One-hour photo, UPS Burger King Supermarkets Disneyland Nordstroms Banks, ATMs

Operations Strategy
Operations strategy The approach, consistent with organization strategy, that is used to guide the operations function.

Strategy Formulation
Distinctive competencies Environmental scanning SWOT Order qualifiers Order winners

Strategy Formulation
Order qualifiers
Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase

End of Chapter Two

Order winners
Characteristics of an organizations goods or services that cause it to be perceived as better than the competition

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