1 2. Operations Management and Strategy Business Strategy Product Attributes Competitive Product Space Process Competencies Aligning Strategy and Operations Focused Strategy Process Architecture Job Shop and Flow Shop Strategies, Competencies and Operations
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2. Operations Management and Strategy
Business Strategy Product Attributes Competitive Product Space Process Competencies Aligning Strategy and Operations Focused Strategy Process Architecture Job Shop and Flow Shop
Strategies, Competencies and Operations
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2. Operations Management and Strategy
Business Strategy: Competing edges of the System (SW)
The special attributes or strengths and weaknesses. Human Resources (cheap labor, skilled labor, etc.) Technology, Facilities, and Equipment Financial Resources Customers Product and Services Suppliers (low material cost, reliable suppliers) Management Practices (low overhead)
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2. Operations Management and Strategy
Business Strategy: Environmental Scanning (OT)
The events and trends that present threats or opportunities for a company. Competitor activities Changes in consumer needs and preferences Technological changes Economic trends (GNP, unemployment, inflation,
interests, taxes, tariffs) Legal, political, and environmental issues
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2. Operations Management and Strategy
Competitive Product Space
Cost Efficiency (1/cost)
Variety
B
A
Responsiveness
A representation of the firm’s product portfolio in the four dimensional space: Q, C, Var., Res.
One firm: low cost and standardized products
Another firm: expensive and customized products.
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2. Operations Management and Strategy
Strategic Positioning
Defines those positions that the firm wants to occupy in its competitive product space. The current position, direction, and goal position.
Price
Responsiveness
B
A
High Low
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2. Operations Management and Strategy
Operations strategy must establish operational goals (Q, T, C, F) that are consistent with the business strategy and develop processes and capabilities that will accomplish them.
Process competencies must be aligned with desired product attributes
To sustain competitive advantage, a firm must ensure that its competitors are not able to imitate its chosen position. Develop an sculpture not a block.
Operations strategy
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2. Operations Management and Strategy
Operational Effectiveness
Gaining and sustaining a competitive advantage requires a good strategic position and operational effectiveness to support the position in all the four dimensions
Operational effectiveness: developing processes and operating policies that support the strategic position better than the competitors.
What distinguishes an effective business process?
How does effective differ from efficient?
Cost Efficiency: achieving an output with minimal level of input and resources
Effective Process: supports execution of company’s strategy
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2. Operations Management and Strategy
Strategic Fit
Strategic fit: Consistency between Process competencies a firm seeks: C, Q, F, T. Process architecture: types of the resources (their flexibility) and
their physical layout in the processing network Managerial policies.
Market-driven strategy: starts with key competitive priorities and then develops the required processes to support them (producers of commodity products)
Process-driven strategy: starts with the business process competencies and then identifies a market position that is best supported by those processes (technologically innovative firms)
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2. Operations Management and Strategy
Focused Strategy, Focused Operations
The essence of strategy is what to do and what not to do.Focused Strategy: Committing to a limited, congruent set
of objectives in terms of demand (product, market) and supply (input, technologies, and volumes).
Aravind Eye Hospital, 100 cataract surgeries a day, operational excellence, 40% gross margin, 70% of patients pay almost nothing, and the hospital does not depend on donations.
A focus process is not limited to a few products. Focused process: one whose products all fall within a
small region of the 4 dimensional product space.
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2. Operations Management and Strategy
Plant Within Plants (PWP)
PWP: The business strategy is diverse. But the entire business is divided into several mini-plants each with focused processes.
One PWP may focus on low cost, the other on quick response.
Strategic fit through focused operations make it very difficult for competitors to imitate.
Supporting the strategic position with multiple mutually reinforcing activities creates a sustainable competitive advantage, because it is harder for competitors to imitate an array of interlocked activities.
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2. Operations Management and Strategy
Shouldice Hospital
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2. Operations Management and Strategy
Focus and the Efficient Frontier in Health-care sector
Cost efficiency
Res
pons
iven
ess
World-classEmergency Room
World-class(non-emergency)Hospital
One general
facility
operations frontier
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2. Operations Management and Strategy
Strategy Position and Operational Effectiveness:
Responsiveness
operations frontier
A
B
C
PriceHigh Low
the minimal curve containing all current positions in an industry
Firms located on the same ray share strategic priorities.
World class firms are on the efficient frontier.
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2. Operations Management and Strategy
Efficient Frontier
Firms not on the EF, are not on strict trade-off, they can make simultaneous improvement on more than one dimension.
Firms on EF need to trade-offTrade-off: decreasing on one dimension to increase on the other
dimension.World class firms also try to push the EF outward.
As technology and management practices advances, the EF moves upward. But the impact is not the same in all industries.
Internet impact on in book industry pushes EF along both the dimensions of cost and variety, while in grocery increases the quality of service to customers, but increases the cost and reduces the responsiveness and variety
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2. Operations Management and Strategy
Strategic Positioning vs. Operational Effectiveness
Improved operational effectiveness is not the same as improved strategic positioning.
Strategic positioning defines the direction of the improvement from current position. The purpose is to specify a direction of improvement, and thus the position on the EF the company wants to occupy.
Operational effectiveness measures the distance of the current position to the operations frontier along the direction of improvement. The purpose is to bring a company closer to a frontier or to push the frontier. (direction is not horizontal)
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2. Operations Management and Strategy
Corporate Strategy(Gain competitive advantage by) providing customers
access to quality goods, when and where needed, at competitive prices.
Operations Strategy– Short flow times– Low inventory levels
Operations Structure– Cross docking– EDI– Fast transportation system– Focused locations– Communication between
retail stores
Wall-Mart
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2. Operations Management and Strategy
Wal-Mart (Resulting Benefits)
Inventory at retail stores turned over twice a week (Industry averages once every two weeks)
Improved targeting of products to markets
Sales per square foot increased from $102 in 1985 to $140 in 1991 (Industry average increased from $102 to $110)
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2. Operations Management and Strategy
Process Architectures
Process Architecture refers to Physical layout of resources Flexibility of resources
Most process architectures fall somewhere on the continuum between job shop and flow shop
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2. Operations Management and Strategy
Process Architectures: Job Shop
A
C
B
D
Product 1
Output
Input
Product 2
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2. Operations Management and Strategy
Job Shop
Functional layout or Process layout: similar resources in the same department. Ex. all press machines are located in stamping department. Ex. Bakeries, law firms, emergency rooms, repair shops. low volume, high variety customized products flexible resources skilled human resources jumbled work flows high material handling large of inventories long flow time highly structured information system high cost per unit of product but low investment
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2. Operations Management and Strategy
Process Architectures: Flow Shop
OutputInput
A
C
BD
B A
Product 1
Product 2
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2. Operations Management and Strategy
Flow Shop
Product layout or line layout: Resources are arranged according to the sequence of the operations. Usually requires duplication ( and investment) of a resource pool; dedication of resources.
Discrete flow shop: assembly line
Continuous flow shop: beverage, chemical plant, process plant. high standardization, high speed low material handling short flow time low unit-processing costs high investment cost; needs mass production. special purpose equipment, and low skilled labor prevent
flexibility
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2. Operations Management and Strategy
ProcessFlexibility
Jumbled Flow.Process segmentsloosely linked.
Disconnected LineFlow/Jumbled Flowbut a dominant flowexists.
JOB SHOP
(Commercial Printer,Architecture firm)
BATCH
(Heavy Equipment,Auto Repair)
FLOW SHOP
(Auto Assembly,Car lubrication shop)
CONTINUOUSFLOW
(Oil Refinery)
ProductVariety
LowLow Standardization
One of a kindLow Volume
Many ProductsFew Major Products
High volume
High StandardizationCommodity Products
Connected LineFlow (assembly line)
Continuous, automated,rigid line flow.Process segments tightlylinked.
Oppor
tunity
Costs
Out-of
-poc
ket
Costs
High
Low
High
Matching Process Choice with Strategy: Product-Process Matrix
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2. Operations Management and Strategy
ProcessFlexibility
Jumbled Flow.Process segmentsloosely linked.
Disconnected LineFlow/Jumbled Flowbut a dominant flowexists.
JOB SHOP
(Commercial Printer,Architecture firm)
BATCH
(Heavy Equipment,Auto Repair)
FLOW SHOP
(Auto Assembly,Car lubrication shop)
CONTINUOUSFLOW
(Oil Refinery)
ProductVariety
LowLow Standardization
One of a kindLow Volume
Many ProductsFew Major Products
High volume
High StandardizationCommodity Products
Connected LineFlow (assembly line)
Continuous, automated,rigid line flow.Process segments tightlylinked.
Oppor
tunity
Costs
Out-of
-poc
ket
Costs
High
Low
High
Matching Process Choice with Strategy: Product-Process Matrix
A similar graph can be prepared to show the relationship between process flexibility and cost, or process flexibility and response time, but not for quality.
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2. Operations Management and Strategy
Characteristics of Processes:Job Shop vs. Batch vs. Flow Shop
Type ofProcess
ProductVolume
SpecializedEquipment
ProductVariety
MachineSetup
Frequency
LaborSkills
VariableCost
Job Shop
Batch
Flow Shop
Most processes fall somewhere on the continuum between Job Shop and Flow Shop
Classification of processes by customer interface Make to Stock (Push System) Make to Order (Pull System)
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2. Operations Management and Strategy
Process Design, Planning, Control, and Improvement
A process manager has four important tasks What should the process architecture be? What policies should govern process operations? How should process performance be planned and
controlled over time? How should process performance be improved?
Corolla: flow shop, decentralized assembly plants close to market, short flow time, low cost
Ferrari: job shop, only a single plant in Italy, longer flow time, high cost
.
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2. Operations Management and Strategy
Process Design, Planning, Control, and ImprovementProcess design: selection of the process architecture that best
develops the competencies that will meet customer expectations.
Managerial policies: Inventory, staffing, organizing, etc. policies. How many units in stock, when replenishment orders should be places, how many customer service representatives should be available by day of week and time of day
Process Planning and control: Identifying internal measures that track process competencies. Continual monitoring to ensure that in the short run the actual process performance conforms to the planned performance. Control performance followed by corrective action.
Process improvement: identifying internal measures that need to be improved in long run and work on changes in process design or planning that are required to achieve this improvement.
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2. Operations Management and Strategy
Historical Development of OM
1765: Factory System (Adam Smith, James Watt)1810: American System of Mfg (Whitney’s interchangeable parts)1890s: Bicycle boom (sheet metal stamping, electrical resistance
welding). Scientific Management Time & motion studies (Frederick Taylor 1900s)
1913: Mass Production (Henry Ford’s Moving Assembly Line)1927: Flexible Mass Production (Alfred Sloan & GM). Statistical
Quality Control (Walter Shewhart at Bell Labs, 1930s) Hawthorn Studies (Elton Mayo at Western Electric, 1930s)
1970: Toyota Production System (Taiichi Ohno)1980s-now: Ops in the spotlight. Manufacturing Strategy Paradigm
(HBS). Lean Ops: JIT, CAD/CAM, CIM, FMS, TQM, business reengineering
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2. Operations Management and Strategychanging sources of competitive advantage
Low price: Having cheap labor 1900sEconomies of Scale (< 1960s)
Inject capital to increase labor productivity You can have any color you want as long as it is black
Focused Factories (mid 1960s) Avoid diseconomy of scale
Flexible Factories and Product variety (1970s) Cope with changes in consumer references. A car for every taste and purse Flexible resources. Quick changeovers
Quality (1980s) Quality is free. Continuous improvement strategy. Zero defect. Perfect reliability
Time (late 1980s-1990s) We love your product but where is it? Don’t sell what you produce. produce what sells.
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