operations management in management engineering - … - 30_09_11... · in management engineering...

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Operations Strategy

Operations Management

Master Degree Course

In Management Engineering

Prof. Sergio Cavalieri

Università degli Studi di Bergamo – 2011 – Riproduzione riservata

Prof.Sergio Cavalieri 2

Course objectives

Understand the relationship between corporate mission, business strategy and operations strategy

Identify possible strategies in operations

Define competitive priorities concepts and decision categories

Define some measure for choosing the most suitable strategy

Debate strategic choices on some companies through the description of industrial cases


Prof: Sergio Cavalieri 3

Some definitions of Operations Strategy

“… the decisions which shape the long-term capabilities of the

company’s operations and their contribution to overall strategy through

the on-going reconciliation of market requirements and operations

resources …” (Slack and Lewis, 2003)

“… a set of goals, policies, and self-imposed restrictions that together

describe how the organization proposes to direct and develop all the

resources invested in operations so as to best fulfill its mission” (Hayes,

et al., 2005)

“….a series of decisions concerning process and infrastructure

investment, which, over time, provide the necessary support for the

relevant order-winners and qualifiers of the different market segments

of a company.” (Hill, 1995, p. 57)


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Operations Strategy and

Operations Management

Micro level of the process

Macro level of the total operation

Level of

analysis

Time scale

Short-term for example, capacity

decisions

1-12 months

De

ma

nd

1-10 years

De

ma

nd

Long-term for example, capacity

decisions

Level of

aggregation

Detailed

For example

“Can we give tax services to

the small business market in

Antwerp?”

Aggregated

For example

“What is our overall business

advice capability compared

with other capabilities?”

Level of

abstraction

Concrete For example

“How do we improve our

purchasing procedures?”

Philosophical For example “Should we develop strategic

alliances with suppliers?”

Operations management Operations strategy

Fonte: Slack e Lewis, 2003

Università degli Studi di Bergamo – 2011 – Riproduzione riservata Prof: Sergio Cavalieri

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“Three Yards and a Cloud of Dust”

Historical «fundamental» of operations manager:

Planning, Scheduling, Production Control

with the aim to improve .... ... Productivity and efficiency of production processes ... The quality of processes and products

But exist the risk to generate a productivity paradox:

Wickham Skinner (1996)

To be less competitive


To improve efficiency

Prof: Sergio Cavalieri

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The end justifies the means

“The reason to invest in a factory is not to have an efficient

production facility or even a “world-class” plant. It is to create

competitive advantage”

(Skinner, 1996)

Need to design a production system that is totally

consistent with corporate business strategies.

“Manufacturing in the corporate strategy”


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How to reconcile business demands

with their internal capacities

Performance

Objectives

Market

Positioning

Customer

Needs

Competitors’

Actions

Required

performance

Understanding

markets

Operations

Strategy

Decision Areas

Tangible and

Intangible

Resources

Operations

Capabilities

Operations

Processes

Understanding

resources and

processes

Strategic

decisions

Fonte: Slack e Lewis, 2003


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The strategic process

Decisions

Marketing

Decisions Operations Financial

Decisions

Corporate

Mission

Business

Strategy

Functional Area Functional Areas

Strategy


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Corporate Mission: where are we going?

Set of technical and economic functions

establishing the institution's business

Answers the following questions:

Why do we exist?

What needs do we meet?

What products / services do we offer?

Where do we operate?

What kind of values do we bring to society? © 1995 Corel Corp.


10

Some missions slogans

1. «To make people happy»

2. “ To organize the world's information and make it universally accessible and useful”

3. "Providing safe convenient and direct air services to our customers. To make and to offer a guaranteed and reliable product with attractive rates for leisure travel and work on a wide range of European destinations. Achieve these objectives through the improvement of our people and establishing lasting relationships of cooperation with our suppliers. "

4. “We create the safest most exciting car experience for modern families”

5. “We work to help people and businesses throughout the world realize their full potential”

6. “To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience”


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Factors influencing organizational

structure

Mission

Values and Business

Philosophy

Profitability and

Sustainable

Development Environment

Customers Social

Immage Benefit to

Society


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Strategy: how to achieve the mission

Specifies a plan of action

Provides a set of consistent and integrated

business decisions

Focus on:

Critical Success Factors

Long-term goals

Investment priorities and resource

allocations

Target business areas © 1995 Corel Corp.

“The essence of strategy is choosing to perform activities differently

than competitors do.” (Michael E. Porter “What is Strategy?” HBR, 1996, p. 68)


13

Critical Success Factors

Critical success factors are the main factors on which a company

can improve satisfaction of their stakeholders

Some examples of FCS:

Profitability

Product Supremacy

Price

Quality

Timeliness and punctuality

Social Responsibility

Customization

Sustainability


14

Mission and Strategy - Nokia

Missione – “Connecting People”

“By connecting people, Nokia helps fulfill a fundamental human

need for social connections and contact. Nokia builds network

between people both when they are far apart and face-to-face and

also fills the gap between them and the information they need.”

Strategy:

“The Nokia strategy continues to focus on three activities to expand

mobile communications in terms of volume and value:

Expand mobile voice

Drive consumer multimedia

Bring extended mobility to enterprises”

(from official website Nokia - http://www.nokia.it)


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The strategic models

The models have two origins:

Theoretical, derived from deductive speculation and / or inductive

analysis of successful cases

Operational, proposed and applied by the major consulting firms.

There is no perfect model, and in general a model is not a priori

better than the others because:

The exogenous conditions change over time and therefore the

successful models may become obsolete

The diffusion of these models drive everybody to compete with the

same weapons making them less effective

A valid theoretical model can be badly implemented and vice

versa

Often a successful company has implemented a new model not

previously described.


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The Porter model

Developed in mature competitive environments where the client has the

ability to purchase primary and interchangeable products/services (=

commodity raw materials, commodities) both from different

manufacturers, and products/services, diversified (brands) from

different manufacturers.

Different perception of

the customer

Lower cost than the

competitors

Covering the whole

sector

Differentiation

Overall/total cost

leadership

Limited to a particular

segment

Focus

(niche market)

(Porter, M. (1985) Competitive advantage: creating and sustaining superior performance,

New York: The Free Press )


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Cost Leadership

A firm has a cost advantage if its cumulative cost for all of the value-

generating activities are lower than those of its competitors

With the increase of production volume costs may decrease due to:

Full utilization of capacity;

Exploitation of economies of scale;

Exploitation of economies of learning;

Greater use of technology;

Reduction in procurement costs.


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Differentiation

A firm differentiates itself from its competitors when it provides something unique, something that has value for

its customers beyond the simple offer of a low price

Uniqueness does not lead to differentiation unless it creates some value for the buyer.

The differentiation allows the firm to:

Ask for a price premium (or obtain a preference for the same price);

acquire equivalent benefits (ex increased loyalty from customers.)


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Focus

Focus can be oriented to costs or differentiation.

1. In the first case, a company with this strategy aims to

achieve a cost advantage limited to a few segments of

the market.

2. In the second case, the focus is directed to

differentiation, that is identifying a group of customer

particularly susceptible to quality.


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Strategy and product life cycle

Heizer/Render – Principles of Operations Management


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Operations Strategy in

a global context

Heizer/Render – Principles of Operations Management


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Strategic choices in Operations

Choices Operations

Corporate

Mission

Business

Strategy

Competitive Priorities Decision Categories


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Competitive priorities

Priority Emphasize Implications for operations

Cost Cost of unit production

Production capacity

Productivity

Keep track of costs and their impact on

individual products

Quality Quality components from supplier

% product defects

Cost of waste or rework

Warranty costs

Ensure that the product and its process

are implemented and managed in

specific accordance

Punctuality Delivery time to the customer

Level of service

Lean production and distribution

processes

Availability of products in stock

Flexibility Product mix

Medium size of batches

Scheduling “frozen” horizon

Ability to produce with low cost and time

burden of product mix and different

volumes

Innovativeness Time-To-Market new products or variant

products

Processes of design, production and

engineering, and integrated competitors

Leong et al. (1990), Miltenburg (1995)


Università degli Studi di Bergamo – 2009 – Riproduzione riservata 24

Time Line for Operations Strategies



Example of Trade-Offs on

Superior Performance Curves


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Order of priorities Order Winner

The characteristics of a firm that

distinguish it from its competition so

that it is selected as the source of

purchase.

Order Qualifier The minimum characteristics of a firm or

its products that a firm must have to be

considered as a source of purchase.

These characteristics enable a

company to obtain orders from the

customer

Order Qualifier are the “key” ,

they’re considered critical and

basic for the customer

“To provide qualifiers, companies need only to be as good as competitors;

to provide order-winners, they need to be better than competitors”

T. Hill (1995, p. 46)



Distinguishing between

Order Qualifiers and Order Winners


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The steps to prioritize

Divide the market into groups

Identify the product requirements, the development

of demand and profit margins for each group

Delineate order winner and order qualifier for each

groups

Convert order winner in specific performance

requirements


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Decision categories


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Relationship between process

technology and competitive priorities

source: Miltenburg (1995)


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Honda Case

(Taken from: The future of Honda Manufacturing – strategy and planning)

Order Winner

Punctuality and Costs

Order Qualifier

Quality

Until the end

of 90s

Afterward… Order Winner

Flexibility

Order Qualifier

Quality, punctuality, costs

Action has been taken in terms of:

- Process standardization and lay-out

- Assembly processes

- Replacement of hydraulic robots with

programmable units

- Adoption of multi-site planning systems for

plant capacity


http://it.wikipedia.org/wiki/Nokia

Docente: Sergio Cavalieri 32

Other support articles

Brands that stop at the border – Financial

Times

Three yards and a cloud of dust:industrial

management at century end – Wickham

Skinner


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Course objectives

Understand the relationship between corporate mission, business strategy and operations strategy

Identify possible strategies in operations

Define competitive priorities concepts and decision categories

Define some measure for choosing the most suitable strategy

Debate strategic choices made by some companies through the description of industrial cases


operations management in management engineering - … - 30_09_11... · in management engineering...

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