Chapter 2 -Operations StrategyChapter 2 -Operations Strategy

Links long and short-term operations decisions to corporate strategy

Must be customer-drivenHelps to develop competitive prioritiesRepetitive cycle for modifications

Operations Strategy

ExampleStrategy Process

Customer Needs

Corporate Strategy

Operations Strategy

Decisions on Processes and Infrastructure

More Product

Increase Org. Size

Increase Production Capacity

Build New Factory

Competitive PrioritiesCompetitive Priorities

Capabilities• current• needed• plans

Corporate strategy• goals• core competencies• environmental responses• new products/services• global strategies

Market analysis• segmentation• needs assessment

Competitive prioritiesOperations Marketing• cost• quality Finance• time• flexibility Others

Functional area strategies• finance• marketing• operations• others

Figure 2.1

Corporate Strategy

Specifies the direction of the organization over the long run. Specify business opportunities and threats, identify growth objectives, how to develop a sustainable competitive advantage.

Strategic ConsiderationsGlobal Strategies

Strategic considerations

Respond to pressures for flexibility.Monitor and adjust to changes in the

business environment.Identify and develop distinctive

competencies.

Flexibility

Evaluate and revise corporate strategy continually to remain competitive.

Develop a capability for change. Five ways to respond to the need for flexibility

Scenario building Reality checks Communication Hires Shortening the budget cycle

Core Competencies

Unique resources and strengths that management considers when formulating a strategy. Examples:Workforce: well trained and flexible

(especially service organizations)Facilities: well located and flexible (volume)Marketing and financial skillSystems and technology: achieve

competitive advantage through innovation

Environment

Environmental scanning: Monitor socioeconomic trends for potential opportunities or threats. Competition is broadening product lines, improving

quality, or lowering costs Economic trends Technological changes Political conditions Social changes (such as ability to adapt to change) Availability of vital resources Collective power of customers or suppliers

Global Strategies

Forms of strategic alliances Collaborative effort [ Kodak.] Joint venture [China.] Licensing of technology [Canon copiers.]

Locating operations in foreign countries: some differences to consider Political environment Customer needs Customs [McDonald’s restaurants.] Economic situation

Xerox R&D – explore the unknown and invent the future

Xerox Research and Technology drives invention, innovation and integration throughout the corporation. Working hand in hand with Xerox's business divisions, XR&T focuses on five key areas: digital imaging, marking systems, materials, document services, and solutions. XR&T also develops research, technology and business concepts that enable Xerox growth opportunities in new markets.

The group creates further customer and business value through driving industry standards and ensuring that Xerox products comply with coherence requirements. XR&T also oversees development and deployment of many of the corporation's core processes in product development through a managed Time-to-Market program.

In 2000, Xerox and Fuji Xerox spent $1.6 billion on research and development (R&D), or about 8 percent of its $18.6 billion in revenues.

Market Analysis

Market segmentation (Step 1) Identify customer groups having common

characteristics that differentiate them from other market segments.

Incorporate market segment needs into product or service design and the operations system design.

Dimensions used to determine market segments Demographic factors Psychological factors Industry factors

Market Analysis

Needs assessment (Step 2)Customer benefit packageCore product or serviceSet of peripheral products or services

Four categories of market needsProduct/serviceDelivery systemVolumeOther

Competitive PrioritiesCompetitive Priorities

Cost 1. Low-cost operationsQuality 2. High-performance design

3. Consistent qualityTime 4. Fast, Reliable delivery

5. On-time delivery6. New development speed

Flexibility 7. Customization8. Volume flexibility

Operating system capabilities and strengths required to serve customers and outperform competitors

Dealing with Trade-offs

Cost

Quality

DeliveryFlexibility

For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.

For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.

For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.

For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.

Service Strategies

Standardized-services strategy Processes are designed for low variety and high volume. Flow tends to follow a linear pattern. [Postal Service and FedEx.] Tasks are repetitive and routine.

Assemble-to-order strategy Processes are designed to produce a set of standardized services

and to assembling standardized offerings for specific customer needs.

Typical competitive priorities are customization and fast delivery time.

Customized-services strategy Nested processes are typically grouped by the function they perform. Processes are designed to provide a high variety of customized

services. Typical competitive priorities include high-performance design as well

as customization.

Health Clinic ProcessHealth Clinic Process

Physical exam

Broken arm

Flu

D

T

R P

B

D: Doctor (examination rooms)R: Radiology (X-ray)T: Triage (assess severity of illness)B: Blood (lab test)P: Pharmacy (fill prescriptions)

Broken arm

Flu

Physical exam

Manufacturing Strategies

Make-to-stock strategy Finished goods items held in stock for immediate delivery. High volumes, standard products, linear flow Production based on forecasted demand Supports low cost, consistent quality, competitive priority.

Assemble-to-order strategy. Assemblies and components are held in stock. Final assembly is completed after customer selects options. A very large number of final configurations are possible. Forecasting the final configuration is impractical because of

the many combinations.

Manufacturing Strategies

Make-to-order strategyMost required materials are ordered after

the customer places the order.Goods are produced to customer

specifications.Flexible processes and flow are typical.Supports customization as a competitive

priority

Mass Customization

Use an assemble-to-order strategy, but typically focus on large volumes.

Postpone the task of differentiating the product or service until the latest possible moment.

Product or service implications Design the product or service in modular forms that

can be easily and quickly assembled for a specific customer.

Process implications Design processes as independent modules that can

be easily arranged to meet a variety of needs at the latest possible moment.

Automobile Assembly Process Automobile Assembly Process Made-to-StockMade-to-Stock

A: Front-end body-to-chassis assembly

H: Hood attachmentF: Fluid fillingS: Start-up testing

Midsized

6 cylinder

Compact 4 cylinder

A SH F

Midsized 6 cylinder

Compact

4 cylinder

Operations Strategy as a Pattern of Decisions

Operations strategy translates service or product plans and competitive priorities for each market segment into decisions affecting the processes that support those market segments.

A service or manufacturing strategy must be selected for each process.

These decisions must be continually reevaluated according to the needs of the market.

The pattern of decisions is also a function of the firm’s core competencies.

Operations Strategy Across the Organization

A firm is a system of interconnected parts, or functional areas.

Management information systems help to link the various functional areas.

Full collaboration among functional areas on decisions is a vital requirement for success.

Strategy and DecisionsStrategy and Decisions

Operations strategy

• Process decisions• Quality decisions• Capacity, location, and layout decisions• Operating decisions

Market analysis

Competitive priorities

Corporate strategy

Figure 2.4

Services Manufacturing• Standardized services• Assemble-to-order• Customized services

• Make-to-stock• Assemble-to-order• Make-to-order

Capabilities

Strategies at LFKHS and ChaparralStrategies at LFKHS and Chaparral

Decision Area LFKHS Chaparral

Business Low-volume, High-volumestrategy customized services standardized products

made to stock

Competitive Customized services, Low-cost, fast delivery,priorities consistent quality, and consistent quality

and volume flexibility

Process Labor intensive Capital intensivedesign

HP Operations Strategy

In the past decade, HP has consistently taken measures to ensure profitability in the PC market through increased operational efficiency, expanded build-to-customer-order capabilities and supply chain improvements.

Outsourcing PC manufacturing allows HP to focus on strategic core competencies, including supply chain design, new product and services development, supplier management and customer relationship management.