The Strategic Role and Objectives of Operations/ Production

Henky S. Nugroho Bambang P. Prianto

Production Management Course Manufacturing Management & System Research Groups Mechanical Engineering Faculty of Engineering Univ. of Indonesia

Chapter 2 The Strategic Role and Objectives of Operations

the roles of the operations function include:
as implementer of business strategy as a support to business strategy
developing resources to achieve organisational goals

as the driver of business strategy

by ensuring long term competitive edge

there are 5 performance objectives:

quality:
do things right good quality products mean high customer satisfaction and their return fewer internal errors reduces costs
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2 The Strategic Role and Objectives of Operations

speed:
do things fast time that customers wait to receive products faster the customer receives product, more likely they will buy it internally, waiting time creates large stocks (inventories) of products

dependability:
do things on time deliver goods and service when they were promised reduces disruption to production internally reduces cost by eliminating ineffective use of time establishes stability through trust

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2 The Strategic Role and Objectives of Operations

flexibility:
change what you do product/service flexibility (new products) mix flexibility (wide range of products) volume flexibility (level of output) delivery flexibility (timing of delivery) internal flexibility gives fast service, saves time, and maintains dependability

cost:
do things cheaply reducing costs can give competitive advantage to companies competing on price costs are incurred generally for:
staff facilities, technology, equipment materials

costs are also reduced by improving upon other 4 objectives

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Chapter 3 Operations Strategy

strategy is the set of decisions committing the organisation to actions operations strategy concerns the pattern of strategic decisions and actions which set the role, objectives and activities of the operation there are 4 perspectives of operations strategy:
a top-down reflection of what the whole group or business wants to do (hierarchy of strategies) a bottom-up activity where operations improvements cumulatively build strategy (emergent strategies) translating market requirements into operations decisions (customers and competitors) exploiting capabilities of operations resources in chosen markets (core competence)
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3 Operations Strategy top-down perspective:

Corporate strategy Business strategy Functional strategy

corporate strategy is concerned with the corporations position globally, economically, politically and in the social environment gives direction to total business:
where to invest priorities in terms of sales revenue growth allocation of investment funds, in line with priorities
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3 Operations Strategy
each business unit within the corporate group has its own strategy, with individual mission and objectives this is called business strategy:
ie. business units of a bank: corporate banking, retail banking, financial markets, mortgages, insurance for each, identify markets to compete in, grow in identify in which functinal tasks to invest in

within the business, functional strategies consider what part each function should play in contributing to the strategic objectives of the business:
functions include operations, marketing, product development eg. support competing in markets

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3 Operations Strategy market requirements perspective:

competitive factors define customers requirements, which implies different performance objectives:
low price (cost) high quality (quality) fast delivery (speed) reliable delivery (dependability) innovative products and services (flexibility p/s) wide range of products and services (flexibility mix) ability to change timing/quantity (flexibility volume/delivery)

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3 Operations Strategy
competitive factors may be split into 2 categories:
order-winning factors
directly contribute to winning business are key reasons for purchasing a product and service

qualifying factors
are those aspects of competitiveness where the operations performance has to be above a particular level just to be considered by the customer

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3 Operations Strategy
the product/service life cycle can be used to understand behaviour of customers and competitors:
Introduction Growth Maturity Decline

Sales volume

t
introduction:
flexibility required, due to uncertainty in the market quality to maintain product performance

growth:
speed and dependability in responding to demand

maturity:
costs to be reduced and dependability in supply achieved

decline:
cost reduction required Page 6 of 9

3 Operations Strategy operations resources perspective:

structural decisions are those which primarily influence design activities:
new product development strategy (leader?, follower?) vertical integration strategy facilities strategy (location, capacity) technology strategy

infrastructural decisions influence the workforce, planning and control, and improvement activities:
workforce strategy (roles, skills) capacity adjustment strategy (demand forecast) supplier development strategy (choosing, relationship) inventory strategy (quantity, location)

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3 Operations Strategy
operations strategy is about the reconciliation between the market requirements and developing operations resources:

Operations resources

Customers needs

Operations capabilities

Structural and infrastructural decisions

Performance objectives

Stage in product/service life cycle

Operations processes

Competitors actions

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3 Operations Strategy operations strategy matrix combines the last 2 perspectives:

Resource usage quality speed dependability flexibility cost Structural decisions Infrastructural decisions Market competitiveness

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Strategy Formulation
Strategy depends on internal and external conditions and performance objectives

Strategic Planning - Formulation

Mission & Vision Voice of the Business Business Strategy Voice of the Customer

Marketing Strategy

Operations Strategy

Financial Strategy

External Conditions
Economic conditions
interest rates unemployment rates

Political conditions
tariffs and trade restrictions political stability

Market conditions
needs and desires of customers

External Conditions
Social conditions
social trends changing demographics

Technological conditions
new products new processes information technology

Internal Conditions
(measuring current performance) Current strengths and weaknesses Existing products Existing customers Existing distribution or delivery systems Human resources

Internal Conditions
Current facilities Technological capabilities Patents Availability of capital

Policy Deployment
Focuses employees on common goals & priorities Translates strategy into measurable objectives Aligns day-to-day decisions with strategic plan

Vision:

Policy Deployment Example: Copyplus

Total customer satisfaction Improve customer retention

Strategic goal:

Customer complaint: It takes too long to repair the copier Functional performance goal: Reduce downtime on

copier

Action Plan For Copyplus

(defining measurable performance objectives)
Reduce repeat visits due to parts by 20%* Reduce repeat visits by 20% Reduce repeat visits needed to diagnose Improve diagnosis Reduce time at customer site Establish guidelines for easy repair Redesign reporting process Reduce response time Increase product reliability

Reduce service time by 30%

Reduce downtime on copier by 50%

Establish regional service centers

Specific Action
*
What Improve stocking of parts Who Gladys Wray When June 1 Measure Number of repeat visits due to part not on hand Resources $500

Strategies for cost ...

Traditional:
low overhead dedicated equipment (hard automation) high utilization large volumes (economy of scale) low wages

Lean:
reduced scrap and rework reduced WIP reduced waste reduced inspection product standardization and simplification

Strategies for quality...

Traditional:
increased inspection more expensive processes Lean:
skilled, trained workers continuous improvement poka-yoke statistical process control rapid discovery and correction of problems (effective measuring method) product standardization and simplification

Strategies for dependability...

Traditional:
large inventory complex scheduling systems

Lean (measurable):
low equipment failures high quality - no scrap or rework low WIP low lead times small batch sizes flexible manufacturing

Strategies for flexibility and speed...

Traditional:
general purpose equipment (e.g. job shop) reserve capacity flexible automation

Lean:
low setup time small batch size multi-skilled workers concurrent engineering short lead times low WIP