Operations Strategy and Competitiveness
Dec 01, 2014
Operations Strategy and Competitiveness
Strategy in Operations
• Formulation• Competitive issues• Corporate Strategy• Decision Making• Deployment
Operations Strategy
• The operations strategy is a statement of how operations function will contribute to the achievement of corporate goals.
Steps in Strategy Formation• Define primary task
– What is the firm’s main business• Assess core competencies
– Where do you have advantage over others • What will win the order? • Positioning the firm
– So that it compete with others• Demand Management and Forecasting
Factors to Consider for Competitive Advantage
• Cost – Southwest airlines
• Quality – Japanese auto industry
• Flexibility – Raymond suits
• Speed – Citibank, Dell
Operations Role in Strategy
• Can differentiate the firm from other competitors
• Provide the support
Wal-Mart Example
• Low prices everyday• Strategy– Low inventory– Sort flow lines
• Support structure – All store linked – Fast transportation
• High volume / low unit margin
Internet
• Banking • Amazon • Back-office support
Corporate Strategy Design ... 1
• Integration of Finance, Marketing and Operations function
• Financial perspective : ROI, ROCE, EVA – Build new sources of revenue and Enhance the value of
existing accounts – Improve cost structure and asset utilization
• Customer perspective – Product leadership (Sony, Intel) – Customer intimacy (HDFC Bank) – Operational excellence (Jet, Reliance)
Corporate Strategy Design ... 2
• Internal perspective : defines the business processes and the specific activities the organization must master to support the customer value proposition.
• Learning and Growth : – Strategic competencies – Strategic technologies – Climate for action ... Culture, motivation,
empowerment
Strategic Fit
• All activities relate to each other • Making these efficient means reducing the
cost • Making them effective means the combined
set of activities support the company’s strategy
Southwest Airline
• Only 737 in the fleet • No connections, only direct flights • Smaller airports • Multi tasking by staff • Quick turnaround • More hours in the air for pilots• No meals, baggage transfers, seat allocation
Strategy for Delivering Products and Services
• Make to order • Make to stock• Assemble to order
Production Systems
• Project (Low standardization, low volume)• Batch (Low-medium standardization, low-
medium volume)• Mass Production (Medium standardization,
medium volume)• Continuous production (High standardization,
High volume)
Services
• Professional service – highly specialized, e.g. Lawyer
• Service shop – customized , e.g. Teacher • Mass service – less customized, e.g. Retail
store • Service factory – e.g. Electricity
Capacity and Facility
• Capacity – When, How much, in what form • Facility – Centralization vs. De-centralization – Specialized facilities – Location
Manpower Resources
• Skill levels, education • Training needs • Comp and benefits, promotion and increment
policies • Structure of employment – permanent or
contract • Bonus, profit sharing, stock options
Quality
• Definition of quality • Measurement of quality • Who is responsible for quality • Training and awareness • Customer feedback
Make vs. Buy
• What are all the components made by the company (e.g. Car assembly)
• Suppliers– Who – When – Selection process – How much – How many – Relationship with the suppliers
Productivity Measurement
• Productivity = output / input• Productivity = output / resources consumed• Productivity = Output /
(Labour+Capital+Energy)• Economic productivity = value / cost• Productivity is a relative measure • IT examples: Function Point Analysis, Lines of
Code
Balanced Scorecard
• Developed by David Norton and Robert Kaplan• Strategic Performance Management Tool • Mixture of Financial and non-financial
measures • Comparison with the target values within a
common report
Balances Scorecard Design
• Translate the vision into operational goals• Communicate the vision and link it to
individual performance• Business planning, index setting• Feedback and learning, and adjusting the
strategy accordingly• SMART metrics (Specific, Measurable,
Achievable, Realistic and Timely)
Examples of key Performance Indicators
• Marketing – Customer attrition, new customers
• Manufacturing – Cycle time, utilization • IT – Availability, MTBF
Manpower
Customers
Products
SuppliersPartners
Cycle Time
Defect Density
0
10
20
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