OPSM 301 Operations Management Class 2: Operations management strategy and process selection Chapter 2 Koç University Zeynep Aksin [email protected].

OPSM 301 Operations Management

Class 2:Operations management strategy and process selectionChapter 2

Koç University

Zeynep [email protected]

Announcements

Web page available through Courseware link Please get copies of the course pack from Xerox

for case assignments coming up. Will skip sections on global operations and

strategy implementation in Chapter 2 Will cover Ch 7 p 254-263 today.

OPSM elective course: Operations Strategy

Operations & the Process View:What is a Process?

Inputs OutputsGoods

Services

Labor & Capital

Informationstructure

Network ofActivities and Buffers

Flow units(customers, data, material, cash, etc.)

Resources

ProcessManagement

Organization Chart

Process

customer customer

suppliers

What is Operations Management?

Management of business processes

How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs.– What is appropriate?

What defines a “good process”?Performance: Financial Measures

Absolute measures: – revenues, costs, operating income, net income– Net Present Value (NPV) =

Relative measures:– ROI, ROE– ROA =

Survival measure:– cash flow

Assets Total Average

TaxEBIT

T

tt

t

r

C

0 1

Firms compete on product attributes.This requires process capabilities.

Price (Cost) P Quality Q

– Customer service– Product quality

Time T– Rapid, reliable delivery– New product development

Variety V– Degree of customization

“order winners”

To deliver we need “capabilities”

Fit between Strategy and Processes

Processes must fit the operations strategy of the firm:Competing on

-Cost (Southwest Airlines)-Quality (Toyota,Arçelik)-Flexibility (HP)-Speed (McDonalds)

all require different process designs and different measures to focus on.

Corporate StrategyKey Performance Indicators Operations StrategyProcess Design& Improvement

Performance Measures

Performance

Objective Some typical Measures

Cost Minimum delivery time/average delivery time, utilization of resources, labor productivity, added value, efficiency, cost per operation hour

Quality Number of defects per unit, level of customer complaints, scrap level, mean time between failures, customer satisfaction scores

Speed Customer query time, Order lead time, frequency of delivery, actual versus theoretical throughput time, cycle time

Flexibility Time needed to develop new products/services, range of products/services, machine change-over time, average batch size, time to increase activity rate, average capacity/maximum capacity, time to change schedules

Linking the strategic role & process view:Strategic Operational Audit

DesiredBusiness Strategy

Operations Strategy

DesiredCapabilities

Marketing, …, Financial Strategy

Desired Oper’l Structure:

Processes & Infrastructure

Product Attributes

P, T, Q, V

Process Attributes

C, T, Q, Flex

Existing Capabilities

Operational Structure:

Processes & Infrastructure

Existing Desired

FeasibleBusiness Strategies

Strategy Gap?

Measures

Capability Gap?

Process Gap?

Mission/Strategy

Mission - where you are going

Strategy - how you are going to get there; an action plan

Strategy Process

MarketingDecisions

OperationsDecisions

Fin./Acct.Decisions

CompanyMission

BusinessStrategy

Functional AreaFunctional AreaStrategies

Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current

positions in an industry

Responsiveness

operations frontier

A

B

C

PriceHigh Low

Video

King Soopers Bakery– How is bread made?– How does the pastry production process

differ? Customized cakes?– What are the different set-ups in each

process?

Classification Scheme forManufacturing Systems

Organizing production processes: Around the product or process?

Discrete Part Manufacturing– Job Shops– Batch Production– Mass Production

Continuous Processes

A Spectrum of Production Processes

Part Quantity

Part

VarietyJob

Shop Batch Prod.

Mass Prod.

(Flow Line)

ContinFlow Process

Fit of Process, Volume, and Variety (from Ch. 7)

Process focusprojects, job shops,

(machine, print, carpentry)

Standard RegisterRepetitive

(autos, motorcycles)Harley Davidson

Product focus(commercial baked goods, steel, glass)

Nucor Steel

High VarietyOne or few units per run, high variety(allows customization)

Changes in modulesModest runs, standardized modules

Changes in attributes (such as grade, quality, size, thickness, etc.) Long runs only

Mass Customization

(difficult to achieve, but huge rewards)

Dell Computer Co.

Poor strategy

Low-Volume(Intermittent)

Repetitive Process(Modular)

High-Volume(Continuous)

Process-Focused Strategy Examples

Bank

© 1995 Corel Corp.

Machine Shop© 1995 Corel Corp.

Hospital© 1995 Corel Corp.

Repetitive-Focused Strategy - Examples

Truck

© 1995 Corel Corp.

Clothes Dryer

© 1995 Corel Corp.

Fast Food

McDonald’sover 95 billion served

McDonald’sover 95 billion served

© 1984-1994 T/Maker Co.

Product-Focused Examples

© 1995 Corel Corp.

Light Bulbs (Discrete)

Paper (Continuous)© 1984-1994 T/Maker Co.

© 1995 Corel Corp.

Soft Drinks (Continuous, then Discrete)

Mass Flu Shots (Discrete)

© 1995 Corel Corp.

The Job Shop Process

Process Layout One of a Kind Build

– (To Customer Order)

Absence of Rigid Flow Pattern Usually High Product Mix

Process Layout

Lathe#Lathe#11

Lathe#Lathe#22

Lathe#Lathe#33

LatheLathe#4#4

Product #1735B: Start of Production

Drill Drill Press Press #1#1

Drill Drill Press Press #2#2

Paint Paint MachineMachine

Packaging Packaging Machine #1Machine #1

Packaging Packaging Machine #2Machine #2

Finish

Production

The Batch Flow Process

Process Layout Work Flow in Lots Absence of Rigid Flow Pattern

The Flow Line Process

Product Layout Discrete Parts Rigid Flow Pattern Product Mix of Standard Products

Product Layout

Product #1735B

LatheLatheStart

Production

Drill Drill Press #2Press #2 Paint MachinePaint Machine

Drill Drill Press #1Press #1

Packaging Machine #2Packaging Machine #2

Finish Production

Impetus for Strategy Change

Changes in the organization Stages in the product life cycle Changes in the environment