Transcript
OPERATIONS STRATEGY
Chapter 2
Outline
1. Operations Strategy Model
2. Emphasis on Operations Objectives
3. Linking Strategies
4. Operations Competence
5. Global Scope of Operations
Operations Strategy
Operation Strategy is concerned with the Operation Strategy is concerned with the development of long term plan for determining development of long term plan for determining how to best utilize the major resources of the how to best utilize the major resources of the firm so that there is high degree of compatibility firm so that there is high degree of compatibility between these resources and firm’s long term between these resources and firm’s long term goal. goal.
Operations Strategy Model (Figure 2.1)
Consistent pattern of decisions
Internalanalysis
Externalanalysis
Mission
DistinctiveCompetence
Objectives(cost, quality, flexibility, delivery)
Policies(process, quality systems, capacity,
and inventory)
Operations Strategy
Business strategy
Functional strategies inmarketing, finance,engineering, human
resources, andinformation systems
Results
Corporate strategy
Corporate Strategy
Defines what business the company is in.
Business Strategy
How the a particular business will compete.
Business Strategies
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)
PEST Analysis
Internal Environment
Internal Environment includes Availability of Resources Skills and ability of workforce Location (Place) Control Systems
SWOT 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 Policy Area Strategic Choices
Process Span of process Automation Process flow Job specialization Supervision
Make or buy Handmade or machine–made Flexible or specialized Project, batch, line, or continuous Centralized or empowered workers
Quality Systems
Approach Training Suppliers
Prevention or inspection Technical or managerial training Selected on quality or cost
Capacity Facility size Location Investment
One large or several small facilities Near markets, labor, or materials Permanent or temporary
Inventory Amount Distribution Control Systems
High or low levels of inventory Centralized or decentralized warehouses Control in great detail or less detail
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
Skills of employees Equipment or processes Rapid continuous improvement Well developed partnerships Location Organizational knowledge Proprietary information or control systems
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
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 Customer’s 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.
What is the role of the operations function?
Operations as effector
Operations as follower
Operations as leader
Ops
Strategy
Operationsimplements strategy
Operationssupports strategy
Operationsdrives strategy
Strategy Ops
Strategy
Ops
The 3 key attributes of operations
Operations Contribution
Implementing
Supporting
Driving
be Dependable
Operationalise (to put something to use or into operation) strategy
be Appropriate
Understand strategy
Contribute to decisions
be Innovative
provide Foundation of strategy
Develop long-term Capabilities
The Strategic Role of the Operations Functions
Hayes and Wheelwright’s Four Stage model
1. Internally Neutral2. Externally Neutral3. Internally Supportive4. Externally Supportive
How can the contribution of theoperations function be assessed?
Externally
Objective is to minimize the negative impact of ‘operations’.
Internally
Neutral Supportive
Stage 1
Stage 2 Stage 4
Stage 3
Objective is for ‘operations’ to help the business maintain parity with its competitors.
Objective is for ‘operations’ to provide credible support for the business strategy.
Objective is for ‘operations’ to provide a source of competitive advantage.
Link Strategy With
Operations
Give an Operations Advantage
Externally supportive
Adopt best Practice
Correct the Worst
Problems
Increasing contri
bution of o
peratio
ns
Internally supportive
Externally neutral
Internally neutral
The strategic role of operations can be defined (Hayes and Wheelwright)
STAGE 1 STAGE 2 STAGE 3 STAGE 4
The ability
to Implement
The ability
to Drive strategy
Stop holding the
organisation back
Be as good as
competitors
Be clearly the best in
the industry
Redefine the industry’s
expectations
The abilityto
support Strategy
Issues and Trends in Operations
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
Speed and Flexibility Speed of innovation, delivery, communication, information
Supply Chain Managing the supply chain, virtual integration
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.
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.
Competitiveness:Competitiveness:
How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services
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
How does mission, strategies and tactics relate todecision making and distinctive competencies?
StrategyStrategy TacticsTacticsMissionMission
Strategy Strategies
Plans for achieving organizational goals 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
The methods and actions taken to accomplish strategies
Planning and Decision MakingMission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
MarketingStrategies
OperationsStrategies
Tactics Tactics Tactics
Operatingprocedures
Operatingprocedures
Operatingprocedures
Strategy ExampleRita 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
Mission: Live a good life 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
Banks, ATMsConvenienceLocationLocation
DisneylandNordstroms
Superior customer service
ServiceService
Burger KingSupermarkets
VarietyVolume
FlexibilityFlexibility
Express Mail, Fedex,One-hour photo, UPS
Rapid deliveryOn-time delivery
TimeTime
Sony TVLexus, CadillacPepsi, Kodak, Motorola
High-performance design or high quality Consistent quality
QualityQuality
U.S. first-class postageMotel-6, Red Roof Inns
Low CostPricePrice
Examples of Distinctive Competencies
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
Order winners Characteristics of an organization’s
goods or services that cause it to be perceived as better than the competition
End of Chapter Two
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