Chapter 2 – Operations Strategy

2000 by Prentice-Hall, Inc 2

Chapter 1 Review

1. The role of operations is to:

2. What are three types of transformation processes?

3. TorF: Scientific management used motivation theory.

4. What are three ways that E-business impacts operations?

5. Productivity is defined as what?

6. What is one reason a firm may find it difficult to enter a new industry?

2000 by Prentice-Hall, Inc 3

StrategyA common vision that unites an

organization, provides consistency in decisions, and keeps the organization moving in the right direction.

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Strategy Formulation

1.1. Define a primary taskDefine a primary task

2.2. Assess core competenciesAssess core competencies

3.3. Determine order winners & order qualifiersDetermine order winners & order qualifiers

4.4. Positioning the firmPositioning the firm

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Competitive Priorities

Cost Quality Flexibility

The ability to adjust to changes in product mix, production volume, or design

Speed

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Competing on Cost

Eliminate all wasteEliminate all waste Invest inInvest in

Updated facilities & equipmentUpdated facilities & equipment Streamlining operationsStreamlining operations Training & developmentTraining & development

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Competing on Quality

Please the customerPlease the customer Understand Understand

customer attitudes customer attitudes toward and toward and expectations of expectations of quality quality

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Competing on Flexibility

Produce wide variety of Produce wide variety of productsproducts

Introduce new productsIntroduce new products Modify existing products Modify existing products

quicklyquickly Respond to customer Respond to customer

needsneeds

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Competing on Speed

Fast movesFast moves Fast adaptationsFast adaptations Tight linkagesTight linkages

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Operations Role in Corporate Strategy

Provide support for overall strategy of a Provide support for overall strategy of a firmfirm

Serve as firm’s distinctive competenceServe as firm’s distinctive competence Must be consistentMust be consistent Must be consistent with overall strategyMust be consistent with overall strategy

2000 by Prentice-Hall, Inc 11

Strategy and the Internet

Create a distinctive business Create a distinctive business strategystrategy

Strengthen existing Strengthen existing competitive advantagescompetitive advantages

Integrate new and traditional Integrate new and traditional activitiesactivities

Must provide a unique value Must provide a unique value to the customerto the customer

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Strategic Decisions in Operations

Products Processes and

Technology

Capacity

Human Resources Quality

Facilities Sourcing

Services

Operating Systems

Figure 2.2Figure 2.2

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Products & Services

Make-to-orderMake-to-order Made to customer specifications after Made to customer specifications after

order receivedorder received Make-to-stockMake-to-stock

Made in anticipation of demandMade in anticipation of demand Assemble-to-orderAssemble-to-order

Add options according to customer Add options according to customer specificationspecification

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Processes & Technology

ProjectProject One-time production of product to customer orderOne-time production of product to customer order

Batch productionBatch production Process many jobs at same time in batchesProcess many jobs at same time in batches

Mass productionMass production Produce large volumes of standard product for Produce large volumes of standard product for

mass marketmass market Continuous productionContinuous production

Very high volume commodity productVery high volume commodity product

2000 by Prentice-Hall, Inc 15

Product-Process Matrix

Vo

lum

eV

olu

me

LowLow

LowLow HighHigh

HighHigh

Projects

BatchProduction

MassProduction

ContinuousProduction

StandardizationStandardization

Figure 2.3Figure 2.3

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Service-Process MatrixV

olu

me

Vo

lum

e

LowLow

LowLow HighHigh

HighHigh

Professional Service

Service Shop

MassService

Service Factory

StandardizationStandardizationFigure 2.4Figure 2.4

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Capacity & Facilities

How much capacity to provideHow much capacity to provide Size of capacity changesSize of capacity changes Handling excess demandHandling excess demand Hiring/firing workersHiring/firing workers Need for new facilitiesNeed for new facilities

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Human Resources

Skill levels requiredSkill levels required Degree of autonomyDegree of autonomy PoliciesPolicies Profit sharingProfit sharing Individual or team workIndividual or team work Supervision methodsSupervision methods Levels of managementLevels of management TrainingTraining

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Quality

Target levelTarget level MeasurementMeasurement Employee involvementEmployee involvement TrainingTraining Systems needed to ensure qualitySystems needed to ensure quality Maintaining quality awarenessMaintaining quality awareness Evaluating quality effortsEvaluating quality efforts Determining customer perceptionsDetermining customer perceptions

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Sourcing

Degree of vertical integrationDegree of vertical integration Supplier selectionSupplier selection Supplier relationshipSupplier relationship Supplier qualitySupplier quality Supplier cooperationSupplier cooperation

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Operating Systems

Execute strategy dailyExecute strategy daily Information technology supportInformation technology support Effective planning & control Effective planning & control

systemssystems Alignment of inventory levels, Alignment of inventory levels,

scheduling priorities, & reward scheduling priorities, & reward systemssystems

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Strategic Planning

Mission and Vision

Corporate Strategy

Voice of the Business

Voice of the Customer

Marketing Strategy

Operations Strategy

Financial Strategy

Figure 2.5Figure 2.5

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Policy Deployment – Hoshin planning

Focuses employees on common Focuses employees on common goals & prioritiesgoals & priorities

Translates strategy into Translates strategy into measurable objectivesmeasurable objectives

Aligns day-to-day decisions with Aligns day-to-day decisions with strategic planstrategic plan

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Derivation of an Action Plan

Reduce business Reduce business cycle time by 50%cycle time by 50%

Reduce production Reduce production cycle time by cycle time by 30%30%

Reduce queue Reduce queue time by 50%time by 50%

Reduce setup Reduce setup time by 50%time by 50%

Cut lot sizes in Cut lot sizes in halfhalf

Reduce Reduce purchasing purchasing cycle time by cycle time by 30%30%

Increase electronic Increase electronic transactions by 30%transactions by 30%

Redesign supplier Redesign supplier quality reporting processquality reporting process

Set up supplier Set up supplier education groupseducation groups

Reduce supplier Reduce supplier base by 50%base by 50%

What Who When Measure Resource

Improve Billy 9-1-03 Average $5,000work Wray queueflow time per

job

. . .. . .

. . .. . .

. . .. . .

. . .. . .

. . .. . .

. . .. . .

. . .. . .

Figure 2.6Figure 2.6

2000 by Prentice-Hall, Inc 25

Balanced Scorecard

Finance — Finance — How should we look to our How should we look to our shareholders?shareholders?

Customer — Customer — How should we look to our How should we look to our customers?customers?

Processes — Processes — At which business processes must At which business processes must we excel?we excel?

Learning and Growing — Learning and Growing — How will we sustain How will we sustain our ability to change and improve?our ability to change and improve?

2000 by Prentice-Hall, Inc 26

Mobil’s Strategy Map

Nongasoline products & Nongasoline products & servicesservices

More premium brandsMore premium brands

Volume growth

Delight the customer

Create new products & services

Personal growth

Net margin

Win-win dealer relations

Deliver products on spec, on time

Process improvement

Build best-in-class franchise

Functional excellence

Revenue Growth Strategy

FinancesFinances

CustomersCustomers

ProcessesProcesses

Learning and Learning and GrowthGrowth

Clean/safe/fastClean/safe/fast

Convenience storeConvenience store

Align goalsAlign goals

Teamwork, qualityTeamwork, quality

Strategic & job skillsStrategic & job skills

Develop business skillsDevelop business skills

Inventory managementInventory management

New technologyNew technology

Figure 2.7Figure 2.7

2000 by Prentice-Hall, Inc 27

Issues and Trends

Global markets, Global markets, sourcing, operationssourcing, operations

Virtual companiesVirtual companies Greater choiceGreater choice Emphasis on serviceEmphasis on service Speed and flexibilitySpeed and flexibility

Supply chainsSupply chains C-commerceC-commerce Technological Technological

advancesadvances KnowledgeKnowledge Environment and Environment and

social social responsibilitiesresponsibilities

2000 by Prentice-Hall, Inc 28

The Changing Corporation20TH CENTURY20TH CENTURY 21ST CENTURY21ST CENTURY

CHARACTERISTICCHARACTERISTIC CORPORATIONCORPORATION CORPORATIONCORPORATION

OrganizationOrganization The PyramidThe Pyramid The WebThe WebFocusFocus InternalInternal ExternalExternalStyleStyle StructuresStructures FlexibleFlexibleSource of strengthSource of strength StabilityStability ChangeChangeStructureStructure Self-sufficientSelf-sufficient InterdependenciesInterdependenciesResourcesResources Physical assetsPhysical assets InformationInformationOperationsOperations Vertical integrationVertical integration Virtual integrationVirtual integrationProductsProducts Mass productionMass production Mass customizationMass customizationReachReach DomesticDomestic GlobalGlobalFinancialsFinancials QuarterlyQuarterly Real-timeReal-timeInventoriesInventories MonthsMonths HoursHoursStrategyStrategy Top-downTop-down Bottom-upBottom-upLeadershipLeadership DogmaticDogmatic InspirationalInspirationalWorkersWorkers EmployeesEmployees Employees, free agentsEmployees, free agentsJob expectationsJob expectations SecuritySecurity Personal growthPersonal growthMotivationMotivation To competeTo compete To buildTo buildImprovementsImprovements IncrementalIncremental RevolutionaryRevolutionaryQualityQuality Affordable bestAffordable best No compromiseNo compromise

Table 2.1Table 2.1