Strategic Operations Management

Introduction:
Strategic Management - Meaning and Important Concepts
Strategic Management - An Introduction
Strategic Management is all about identification and description of the strategies that
managers can carry so as to achieve better performance and a competitive advantage for
their organization. An organization is said to have competitive advantage if its profitability is
higher than the average profitability for all companies in its industry.

Strategic management can also be defined as a bundle of decisions and acts which a
manager undertakes and which decides the result of the firm’s performance. The manager
must have a thorough knowledge and analysis of the general and competitive organizational
environment so as to take right decisions. They should conduct a SWOT Analysis (Strengths,
Weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of
strengths, minimize the organizational weaknesses, make use of arising opportunities from
the business environment and shouldn’t ignore the threats.

Strategic management is nothing but planning for both predictable as well as unfeasible
contingencies. It is applicable to both small as well as large organizations as even the
smallest organization face competition and, by formulating and implementing appropriate
strategies, they can attain sustainable competitive advantage.

It is a way in which strategists set the objectives and proceed about attaining them. It deals
with making and implementing decisions about future direction of an organization. It helps
us to identify the direction in which an organization is moving.

Strategic management is a continuous process that evaluates and controls the business and
the industries in which an organization is involved; evaluates its competitors and sets goals
and strategies to meet all existing and potential competitors; and then reevaluates
strategies on a regular basis to determine how it has been implemented and whether it was
successful or does it needs replacement.

Strategic Management gives a broader perspective to the employees of an organization and

they can better understand how their job fits into the entire organizational plan and how it
is co-related to other organizational members. It is nothing but the art of managing
employees in a manner which maximizes the ability of achieving business objectives. The
employees become more trustworthy, more committed and more satisfied as they can co-
relate themselves very well with each organizational task. They can understand the reaction
of environmental changes on the organization and the probable response of the
organization with the help of strategic management. Thus the employees can judge the
impact of such changes on their own job and can effectively face the changes. The managers
and employees must do appropriate things in appropriate manner. They need to be both
effective as well as efficient.
One of the major role of strategic management is to incorporate various functional areas of
the organization completely, as well as, to ensure these functional areas harmonize and get
together well. Another role of strategic management is to keep a continuous eye on the
goals and objectives of the organization.

Following are the important concepts of Strategic Management:

Strategy - Definition and Features
Components of a Strategy Statement
Strategic Management Process
Environmental Scanning
Strategy Formulation
Strategy Implementation
Strategy Formulation vs Implementation
Strategy Evaluation
Strategic Decisions
Business Policy
BCG Matrix
SWOT Analysis
Competitor Analysis
Porter’s Five Forces Model
Strategic Leadership
Corporate Governance
Business Ethics
Core Competencies

Strategy - Definition and Features

The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army)
and “ago” (meaning leading/moving).

Strategy is an action that managers take to attain one or more of the organization’s goals.
Strategy can also be defined as “A general direction set for the company and its various
components to achieve a desired state in the future. Strategy results from the detailed
strategic planning process”.

A strategy is all about integrating organizational activities and utilizing and allocating the
scarce resources within the organizational environment so as to meet the present
objectives. While planning a strategy it is essential to consider that decisions are not taken
in a vaccum and that any act taken by a firm is likely to be met by a reaction from those
affected, competitors, customers, employees or suppliers.
Strategy can also be defined as knowledge of the goals, the uncertainty of events and the
need to take into consideration the likely or actual behavior of others. Strategy is the
blueprint of decisions in an organization that shows its objectives and goals, reduces the key
policies, and plans for achieving these goals, and defines the business the company is to
carry on, the type of economic and human organization it wants to be, and the contribution
it plans to make to its shareholders, customers and society at large.

Features of Strategy
1. Strategy is Significant because it is not possible to foresee the future. Without a
perfect foresight, the firms must be ready to deal with the uncertain events which
constitute the business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it
deals with probability of innovations or new products, new methods of productions,
or new markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision
and direction of an organization. The objective of a strategy is to maximize an organization’s
strengths and to minimize the strengths of the competitors.

Strategy, in short, bridges the gap between “where we are” and “where we want to be”.

Strategic Management Process - Meaning, Steps and Components

The strategic management process means defining the organization’s strategy. It is also
defined as the process by which managers make a choice of a set of strategies for the
organization that will enable it to achieve better performance.

Strategic management is a continuous process that appraises the business and industries in
which the organization is involved; appraises it’s competitors; and fixes goals to meet all the
present and future competitor’s and then reassesses each strategy.

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes. It helps in analyzing
the internal and external factors influencing an organization. After executing the
environmental analysis process, management should evaluate it on a continuous
basis and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course of
action for accomplishing organizational objectives and hence achieving
organizational purpose. After conducting environment scanning, managers
formulate corporate, business and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the strategy work
as intended or putting the organization’s chosen strategy into action. Strategy
 implementation includes designing the organization’s structure, distributing
resources, developing decision making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management
process. The key strategy evaluation activities are: appraising internal and external
factors that are the root of present strategies, measuring performance, and taking
remedial / corrective actions. Evaluation makes sure that the organizational strategy
as well as it’s implementation meets the organizational objectives.

These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic
management plan will revert to these steps as per the situation’s requirement, so as to
make essential changes.

Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that each
component interacts with the other components and that this interaction often happens in
chorus.
 Operation strategy in global economy
Introduction
 Operational effectiveness is the ability to perform similar operations activities better than
competitors.
 It is very difficult for a company to compete successfully in the long run based just on
operational effectiveness.
  A firm must also determine how operational effectiveness can be used to achieve a
sustainable competitive advantage.
 An effective competitive strategy is critical.

Factors Affecting Today’s Global Business Conditions:

 Reality of global competition
 Quality, customer service, and cost challenges
 Rapid expansion of advanced technologies
 Continued growth of the service sector
 Scarcity of operations resources
 Social responsibility issues

Reality of Global Competition

 Changing nature of world business
 International companies
 Strategic alliances and production sharing
 Fluctuation of international financial conditions

Changing Nature of World Business

 The US gross domestic product (GDP) is, at $10 trillion, the largest in the world.
 Companies all over the globe are aggressively exporting their products/services to the US
 Many US companies are targeting foreign markets to shore up profits.
 The global economy that interconnects the economies of all nations has been termed the
global village.
 One of the most important new markets is China.

International Companies
 International companies are those whose scope of operations spans the globe as they buy,
produce, and sell.
 International firms search out opportunities for profits relatively unencumbered by national
boundaries.
 Operations managers must coordinate geopraphically dispersed operations.

World’s Largest Corporations

1. General Motors US
2. Wal-Mart Stores US
3. Exxon Mobil US
4. Ford Motor US
5. DaimlerChrysler Germany
6. Mitsui Japan
7. Mitsubishi Japan
8. Toyota Japan
9. General Electric US
10. Itochu Japan
Strategic Alliances
 Strategic alliances are joint ventures among international companies to exploit global
business opportunities.
 Alliances are often motivated by
o Product or production technology
o Market access
o Production capability
o Pooling of capital

 Japanese companies have long practiced keiretsu, the linking of companies into industrial
groups.
o A financial keiretsu links companies together with cross-holding of shares, sales and
purchases within the group, and consultation.
o A production keiretsu is a web of interlocking relationships between a big
manufacturer (Toyota) and its suppliers.

Production Sharing:
 Production sharing means that a product might be designed and financed in one country, its
materials produced in other countries, assembled in another country, and sold in yet other
countries.
 The country that is the highest-quality, lowest-cost producer for a particular activity would
perform that portion of the production of the product.

Pros and Cons of Globalization:

Pros (Pluses)

 Productivity grows more quickly (living standards can go up faster)

 Global competition and cheap imports keep a lid on prices (inflation less likely to derail
economic growth)
 Open economy spurs innovation (with fresh ideas from abroad)
 Export jobs often pay more than other jobs
  US has more access to foreign investment (keeps interest rates low)

Cons (Minuses)
 Millions of Americans have lost jobs due to imports or production shifts abroad
 Most displaced workers find new jobs that pay less
 Workers face pay-cuts demands from employers
 Service and white-collar jobs are increasingly vulnerable
 US employees lose their comparative advantage when companies build advanced factories
abroad

International Financial Conditions

1. International financial conditions are complex due to:
 inflation
 fluctuating currency exchange rates
 turbulent interest rates
 volatility of international stock markets
 huge national debts of some countries
 enormous trade imbalances between countries

2. Example of Currency Exchange Rate Changes

 A product produced and sold in the US for $1 would have sold in Japan for 135 yen in
1990 and 85 yen in 1995, a price decrease of 37%.
 A product produced and sold in Japan for 135 yen in 1990 and sold for $1 in the US
would have sold in the US for $1.57 in 1995, a 57% price increase.

3. Due, in part, to the fall in the value of the dollar between 1975 and 1995, the
following occurred:
 Prices of US products/services abroad fell and demand increased
 Japan and other countries built factories in US
 Japanese manufacturers moved upscale toward higher priced products
 4. Companies must be ready to move quickly to shift strategies as world financial
conditions change.
5. Opportunities are usually available to reduce risk
 Building smaller, more flexible factories
 Using foreign suppliers for materials, parts, or products
 Carefully planning and forecasting so that changing conditions can be anticipated

Quality, Service, and Cost Challenges

Quality
 The goal of adequate quality must be replaced with the objective of perfect product and
service quality.
 The entire corporate culture must be redirected and committed to the ideal of perfect
quality.
 All employees must be empowered to act.
 A commitment to continuous improvement has to be organization-wide.

Customer Service
 Companies must quickly develop innovative products and respond quickly to customers’
needs.
 Organizational structures must be made more horizontal to quickly accommodate change.
 Multidisciplined teams must have decision-making authority, responding better to the
marketplace.
 Large, unwieldy companies are spinning off whole business units making them autonomous
businesses that can compete with small, aggressive competitors.

Cost
 There is continuing pressure to reduce direct costs (of producing and selling) and overhead
costs.
 It cost the US automakers $1,500 more per auto for labor in 1980 than it cost the Japanese
auto-makers. By the 1990s the difference was almost zero.
 Giant retailers (like Wal-Mart) squeezed weaker competitors out of the market, giving the
retailers the leverage to force their suppliers to streamline operations and reduce
costs/prices.

Cost-cutting measures being used include:

 Moving production to low-labor-cost countries
 Negotiating lower labor rates with unions and workers
 Automating processes to reduce the amount of labor needed, particularly processes that are
labor intensive.

Advanced Technologies
 The use of automation is one of the most far-reaching developments to affect manufacturing
and services in the past century.
 The initial cost of these assets is high.
 The benefits go far beyond a reduction in labor costs.
o Increased product/service quality
 o Reduced scrap and material costs
o Faster responses to customer needs
o Faster introduction of new products and services
 US companies cannot use automated production technology as a long-term competitive
advantage.
 Automation systems are available to any company in the world today, although the price is
prohibitive for some companies.
 Not investing, or delaying investing in this technology could be disastrous for a company.

Scarcity of Operations Resources

 Raw materials like titanium, nickel, coal, natural gas, water, and petroleum products are
periodically unavailable or in short supply.
 A shortage of any necessary input to a conversion subsystem, including skilled personnel,
can be a challenge for an operations manager.
 An important issue in the formation of business strategy is how to allocate scarce resources
among business opportunities.

Social-Responsibility Issues
 Corporate attitudes are evolving from doing what companies have a legal right to do, to doing
what is right.
 Factors influencing this evolution include:
o Consumer attitude -- Consumers are expressing their likes/dislikes by such means as
stockholder meetings, liability suits, and buying preferences.
o Regulation – The EPA, OSHA, Clean Air Act, and Family Leave Act place constraints on
businesses.
o Self-interests -- Companies realize that profits will be greater if they act responsibly.

Environmental Impact

 Concerns about the global environment include:

o Landfill waste reduction
o Recycling
o Energy conservation
o Chemical spills
o Acid rain
o Radioactive waste disposal
o … and more

 There is a need for standardizing government regulations of the environment.

 Otherwise, companies will gravitate to the less-regulated countries.
 The International Organization for Standardization has developed a set of environmental
guidelines called ISO 14000.

Product-Safety Impact
 Harm to people or animals that results from poor product design can:
o Damage a company’s reputation
o Require a large expense to remedy
 o Cause governments to impose more regulations

Employee Impact

 Employee benefits and policies include:

o Safety and health programs
o Fair hiring and promotion practices
o Day-care
o Family leave
o Health care
o Retirement benefits
o Educational assistance
o … and more

 Employee benefits and policies impact long-term profitability due to their effect on:

o Employee morale and productivity

o Recruitment and retention of employees
o Demand for a company’s products
o Cost of defending against lawsuits and boycotts

Methodology for Developing Operations Strategy:

Value as business concept:

Strategic issues in manufacturing:

Value Chain concept Focus:

Value chain
Porter's 1985 description of the value chain refers to the chain of activities (processes or
collections of processes) that an organization performs in order to deliver a valuable
product or service for the market. These include functions such as inbound logistics,
operations, outbound logistics, marketing and sales, and service, supported by systems and
technology infrastructure. By aligning the various activities in its value chain with the
organization's strategy in a coherent way, a firm can achieve a competitive advantage.
Porter also wrote that strategy is an internally consistent configuration of activities that
differentiates a firm from its rivals. A robust competitive position cumulates from many
activities which should fit coherently together.
Porter wrote in 1985: "Competitive advantage cannot be understood by looking at a firm as
a whole. It stems from the many discrete activities a firm performs in designing, producing,
marketing, delivering and supporting its product. Each of these activities can contribute to a
firm's relative cost position and create a basis for differentiation...the value chain
disaggregates a firm into its strategically relevant activities in order to understand the
behavior of costs and the existing and potential sources of differentiation.

Core competence and distinctive capabilities:

Competencies

An organization should posses some characteristics in order to have the ability to compete
with other organizations in the market place. These characteristics form the competencies
of the organization. For any organization to survive in an industry competencies are must. At
the same time competencies cannot be useful to an organization when they stand alone. It
is when they combine together in the right combination that they help the organization to
attain competitive advantage. For instance consider an information technology
organization. For this to compete in the software industry it should posses the
competencies to write programs and design tools which have to be combined together to
provide it with the competitive advantage in the industry.

Distinctive Capabilities

An organization’s resources which are critical in imparting it with competitive advantage are
called distinctive capabilities. When the capabilities originate from an attribute which other
firms do not have then they form an organization’s distinctive capabilities. In addition to
having a distinctive characteristic it should also be sustainable and appropriable.

When a distinctive capability is able to continue functioning over a period of time it is said to
be sustainable. When the organization which holds a distinctive capability is able to benefit
mainly from it then it becomes appropriable. An organization can derive the distinctive
capabilities mainly the organizational architecture, organization reputation and innovation.
The relationships between the organization and the stakeholders are critical in developing
these three aspects of the organization.

Stake holders & strategy:

Definition of Stakeholder
A "stakeholder" is anyone who has an interest in the value that the organisation creates.
Stakeholders may be Owners, Customers, Sponsors, Employees, Volunteers, Government
Agencies, The Wider Community and other organisations in the same sport (e.g. parent
bodies).

In developing strategic plans, including

the most basic element "the mission
statement", organisations must set
objectives that are derived from the
needs of its principal stakeholders.

Owners

Sport and recreation organisations have

"owners". The owners of a sport
organisation that is profit-orientated
areshareholders while non-profit
organisations have members.

Customers

All sport organisations, profit and non-

profit, have customers. If the organisation is a non-profit association, its members are also its
customers to whom it supplies services.

Sponsors

Commercial organisations provide sponsorship monies and seek a return on their investment
in the form of promotion and publicity benefits for their company name and products.
Government agencies provide sponsorship to recreation organisations and also seek a return
on their investment in the form of benefits for the community.

Employees/ volunteers

Unlike other industries, the sport and recreation industry has a large dependency on
volunteers. Sport organisations commonly have less than five employees and in many cases
they function purely with volunteers.
The wider community

The community in which a sport organisation exists is also a stakeholder in the strategic
planning process. Sport organisations must ensure that the services provided are relevant to
the community's needs. Furthermore communities tend to invest in sport organisations
through funding by local municipal government.

Other organisations in same sport

Particularly in the sport sector, most organisations will be

stakeholders in another organisation in the same sport.

For example, the figure on the right illustrates the

hierarchy of sport organisations. A state football
association will be a stakeholder in the national football
federation and at the same time a stakeholder in the
various district football associations in the same state.

A factor of this mutual stakeholder relationship is that each

organisation must provide value to other stakeholders.

Stakeholder Management Strategy

Among all the models discussed above, the power/interest model is the most famous. In
this model you draw a chart that consists of vertical and horizontal lines as shown in the
figure below. The horizontal line shows interest and the vertical line represents
power.
In this model, you can divide stakeholders into four categories: high power – high interest,
high power – low interest, low power – high interest, and low power – low interest.

The strategies to manage these stakeholders are as follows:

 Stakeholders with high power and high interest should be managed with the utmost
care.
 Stakeholders with high power and low interest should be kept satisfied.
 Stakeholders with low power and high interest should be kept informed.
 Stakeholders with low power and low interest require less effort than the rest. They
should only be monitored.

As a project manager, it is your job to keep looking at each stakeholder and their
requirements, because you never know when a low power stakeholder will become one
who is high power and influential. Likewise, a powerful stakeholder may become powerless
in a later stage of the project.

The purpose of a stakeholder management strategy is to increase the support and minimize
the negative impacts of the stakeholders. A successful stakeholder management strategy, if
planned carefully and followed accordingly, can ensure a fruitful ending to your project.

Failing to do so can have a devastating effect on your project.

For example, a few years back an automobile company tried to open a manufacturing plant
in India. They collaborated with the state government and bought the land to construct the
plant. The construction of the plant was almost complete and then local farmers from
whom the land was acquired became agitated and started making demands.

The distress spread throughout the state, and finally the company had to build the plant in
another state. This caused a huge loss to the company, and embarrassment to the state
government.

The reason for this loss was: they did not gain the confidence of local stakeholders at the
beginning of the project. If they had involved them in the decision making process the
situation would have been different.

So you see, you have to start managing your stakeholders from the very beginning of the
project. It will help the project advance according to their requirements, your project will
run smoothly and the quality of your project will improve. If you win the support of your
stakeholders, they will actively assist you and you may not face any problems in accessing
resources.

It is very important for you to understand the communication needs of your stakeholders.
Communicating regularly with them will ensure that they understand the project’s
requirements and they feel connected to the project.
The stakeholder management plan may contain sensitive information which cannot be
shared with everyone. Therefore, keep this document in a secure place.

Before I end this blog post, let’s revise some key points.

Stakeholders can be classified based on their power – interest, power – influence, influence
– impact, and power – urgency – legitimacy. Among all, the power – interest classification is
the most widely used to classify stakeholders.

A stakeholder management strategy is a plan which helps you to keep all stakeholders
satisfied by fulfilling their expectations and requirements. It helps you avoid scope creep,
and mitigates issues that may cause problems for the project. This plan ensures that you
receive full cooperation from the stakeholders with minimal obstruction. And lastly, this
plan should be kept in a secure place because it may contain sensitive information that
cannot be shown to everybody.

Checking the market’s viability

Overall approach

The purpose of this stage is to make an assessment of the market proposals to ensure that
they are economically sound. The market’s impact has to be quantified, expressing costs and
benefits in financial terms to see whether the capital and running costs are likely to be
covered by the expected revenues. This depends on two factors: expenditure levels and the
market’s ability to attract traders willing to rent or lease space. The costs must be covered. In
order to achieve this, investments in physical infrastructure must be kept to a minimum by
using low-cost construction methods.

The market must also be evaluated in social and qualitative terms. By combining all these
factors it should be possible to demonstrate that it is socially, technically and economically
viable. The method of doing this is to prepare a feasibility study.
Outcome of Market debate:
Aligning marketing and manufacturing strategies with the market:
In strategic marketing decisions substantial emphasis is placed on market segmentation and
product/service differentiation. This follows from separate, intensive analyses of customers
and competitors. Based on these analyses, the resultant segmentation and differentiation
schema, and an intensive review of the firm's own strengths, weaknesses, opportunities and
threats, the firm makes one of its most important and critical decisions: which customers to
serve and which products to emphasize, referred to as positioning. On the other side of the
same corporate coin, manufacturing makes decisions on process and infrastructure
investments based upon the technologies required, and its perception of what it needs to
do well in order to fulfil its role. In the same way as with marketing decisions, the firm now
makes another of its most critical decisions by committing itself to major investments in
manufacturing that are characterized by high value and long time scales to change. On the
one hand, these positioning decisions by marketing invariably include little emphasis in
determining the customer requirements that must be supported by manufacturing, and fail
to investigate the ability of manufacturing to support these requirements. On the other
hand, manufacturing decisions do not reflect key insights on the needs of current and future
markets. As a consequence, many businesses fail to achieve their strategic business
objectives, due, in part, to the inability of marketing and manufacturing to jointly develop
consistent strategies. We call this a lack of alignment. The methodology outlined in this
paper concerns how to align marketing and manufacturing strategies by using markets as
the center piece of both developments. Doing this highlights the recognition that markets
need to form the common denominator of both marketing and manufacturing strategy
development. This methodology is illustrated by using an actual example drawn from plant-
based research. Several key questions are addressed in this methodology. How does
marketing view customers and markets? What is manufacturing's view of the same
customers and markets? To what extent is manufacturing actually able to support the
demands that these customers and markets are placing on a firm's capabilities?
It is important to check with the use of data, the actual operating performance against the
required capabilities. In cases where substantial differences exist between customer and
market requirements and manufacturing capabilities, strategic options (both in marketing
and manufacturing) to resolve these differences need to be addressed in making strategic
business decisions.

Strategic Integration
Strategic integration is the gradual combination and transformation of independent
components of business organizations into cohesive and synergistic entities. Strategic
integration is an important element in the process of improving organizational performance
because it facilitates the continuous alignment of business strategies within the ever
changing business environment. Firms use strategic integration to confront the
consequences of both predictable transitions and unpredictable challenges that are bound
to occur at different levels of business operations. Business strategies, corporate strategies,
and functional strategies are the three main levels of strategies that organizations seeking
systematic integration adopt for purposes of creating sustainable competitiveness.
DEFINING STRATEGIC INTEGRATION

Although strategic integration is closely related to strategic management, clear distinctions

must be drawn between the two concepts of organizational strategy. Strategic integration
aims at achieving synergy through creation of compatibility and interdependence across
varied organizational groups, processes, and activities that are autonomous in nature. On
the other hand, strategic management identifies long term goals and guides resource
allocation and utilization for achieving sustainable competitive advantage either within
independent organizational units or in the organization as a whole, without necessarily
streamlining the variations across organizational groups, processes, and activities.
Therefore, strategic management can be perceived as a component of strategic integration.

The process of strategic integration involves crafting and implementing strategic objectives
from an informed perspective of an organization's competitive environment.

Therefore, it is important to begin the integration process by analyzing how the current
mission, objectives, and values affect the interests of all the stakeholders in the
organization. The current mission identifies the current underlying strategies that define an
organization's approach to resource utility. Values express the institutional identity through
organizational culture and practices, whereas organizational objectives define the scope of
results that organizations seek to accomplish (such as profitability, increased market share,
innovation, or financial efficiency).

A conclusive review of organizational structures, resources capabilities, industry trends, and

the external environment of a business organization marks the starting point for efforts
geared towards determining the weaknesses and competitive advantages of the
organization. Upon the successful review of core competencies of an organization, strategic
integration can be implemented and evaluated through appropriate corporate governance
systems, strategic management practices, strategic leadership, and strategic control. The
process of strategic integration must always be accompanied by subsequent adjustments in
the management and coordination of functions and roles both external and internal to the
organization.

INTERNAL INTEGRATION

Strategic approach to internal integration involves streamlining the internal operations of an

organization (such as maintenance, sales, purchasing, advertising, manufacturing,
marketing, and bookkeeping). All the staff of an organization should be involved in the
strategic integration process and provided with adequate access to all the relevant
information that pertains to the integrated approach to operations. In addition, individual
responsibilities along the complex chain of production should be clearly defined.

Organizations can make use of both manual methods and information technology (IT) to link
internal systems and communicate procedure modifications across all levels of the chain of
production. For example, the Toyota Production System utilizes instructional manuals
called Kanbans to relay product output specification instructions across the different
sections of the production lines.
EXTERNAL INTEGRATION

Strategic approach to external integration involves streamlining functional activities that

affect external stakeholders (such as suppliers, financial institutions, customers, distributors,
and agents). Integration of strategies governing external stakeholders requires the
implementation of effective networking and communication systems such as electronic data
relay systems and internet to provide adequate links between external and internal
organizational stake-holders. Successful strategic integration of external factors

Facilitates effective sharing and interpretation of critical information among all the
organization's stakeholders. Processes that govern activities of external stakeholders enable
business organizations to initiate demand forecasts, determine inventory levels, and
monitor the feedback of stakeholders.

Why products sell in the markets:

Even if a company’s new product has significant competitive advantages, introducing it to
the marketplace is extremely challenging. Customers need to be educated about the
product’s uses and benefits, which requires an investment of both time and money. Many
smaller companies with limited financial resources must think of creative, low cost methods
of marketing their product.

Here are five ways to help your product sell itself in a crowded marketplace:

1. Broadcast your advantage. What makes you better than everyone else in the industry?
Be clear with customers from the start. Perceived advantage is built on factors like greater
prestige, more convenience, superior effectiveness or better value for the money.

Even cleaning products, the most mundane of all consumer necessities, can win using this
theory. For example, Mr. Clean Magic Erasers solved the problems that previous spray-on
liquid cleaners claimed to, with the added advantage of not damaging the paint on walls as
competitors' products did. The brand made this ability to remove touch marks without
damaging walls clear through a TV ad campaign that demonstrated the product at work.
This provided positive reinforcement to consumers before they made their purchase.

2. Fit into your customer's routine. How much effort is required for customers to make the
transition from a current product to yours? If the cost is more than its relative advantage,
most people won't try the new product. Febreze seems like one of those success stories --
and it is -- but even P&G can make mistakes with their branding, as was the case with
Febreze Scentstories. In 2004, the company launched a $5.99 scent "player" that was
reminiscent of a CD player with five scent discs that changed every half hour. Consumers
were confused. They couldn't tell if the product played music, freshened air or did both. Not
knowing how or why they would use it, they didn't.

3. Work right out of the box. When building new products, don't add work for the buyer.
Make your product work as intended the first time out and every time thereafter. A kink-
free garden hose, for example, should be kink free the first time and the hundredth time; a
children's toy should be easy to assemble; and you should never expect a busy mom to
spend more than five minutes figuring out how to use a new slow-cooker.

4. Make benefits easy to spot. The more evident the perceived advantages, the more your
product will market itself. For example, the clear plastic packaging of 3M's Command line of
removable hooks allows you to see and understand how the product enables you to hang
and remove a hook without leaving a hole in the wall.

5. Let customers try it out. Tea bags were first used as giveaways so that people could
sample tea without buying large tins, vastly improving the "trial-ability" of brewed tea, and
eventually tea bags. Samples, giveaways and store demonstrations are tried-and-true
techniques for risk-free experimentation. If you can't afford to give your product away, offer
a tempting discount or "buy one get one" deal. Depending on your product and core
customer, you can use sites like Gilt.com or Travel Zoo to make enticing offers.

ORDER QUALIFIERS AND ORDER WINNERS:

Terry Hill argues that the criteria required in the marketplace (and identified by marketing)
can be divided into two groups: order qualifiers and order winners. An order qualifier is a
characteristic of a product or service that is required in order for the product/service to
even be considered by a customer. An order winner is a characteristic that will win the bid
or customer's purchase. Therefore, firms must provide the qualifiers in order to get into or
stay in a market. To provide qualifiers, they need only to be as good as their competitors.
Failure to do so may result in lost sales. However, to provide order winners, firms must be
better than their competitors. It is important to note that order qualifiers are not less
important than order winners; they are just different.
Firms must also exercise some caution when making decisions based on order winners and
qualifiers. Take, for example, a firm producing a high quality product (where high quality is
the order-winning criteria). If the cost of producing at such a high level of quality forces the
cost of the product to exceed a certain price level (which is an order-qualifying criteria), the
end result may be lost sales, thereby making "quality" an order-losing attribute.
Order winners and qualifiers are both market-specific and time-specific. They work in
different combinations in different ways on different markets and with different customers.
While, some general trends exist across markets, these may not be stable over time. For
example, in the late 1990s delivery speed and product customization were frequent order
winners, while product quality and price, which previously were frequent order winners,
tended to be order qualifiers. Hence, firms need to develop different strategies to support
different marketing needs, and these strategies will change over time. Also, since
customers' stated needs do not always reflect their buying habits, Hill recommends that
firms study how customers behave, not what they say.
When a firm's perception of order winners and qualifiers matches the customer's
perception of the same, there exists a "fit" between the two perspectives. When a fit exists
one would expect a positive sales performance. Unfortunately, research by Sven Horte and
Hakan Ylinenpaa, published in the International Journal of Operations and Production
Management, found that for many firms a substantial gap existed between managers' and
customers' opinions on why they did business together. The researchers found that
favorable sales performance resulted when there was a good fit between a firm's
perception of the strengths of a product and customer perception of the product.
Conversely, when firms with high opinions about their competitive strengths had customers
who did not share this opinion, sales performance was negative.

Lean systems - Eliminating waste:

Lean software development advocates 7 lean principles, the first of which is Eliminate
Waste‘.

Sounds obvious really. How many people came to work today to spend their time on waste? Some
maybe! But not most. So what is waste, and how do you identify it?

Some waste is obvious. But other forms of waste are more difficult to spot or to solve. I’m sure in
most organisations it’s sometimes very difficult to identify what is waste and what is not. Some
processes or conventions might seem wasteful, but actually provide real value elsewhere in the
organisation, or prevent other forms of waste from emerging later. Other activities may seem
valuable, but actually do not really result in any real value.

As I mentioned in my opening post about the 7 Key Principles of Lean Software Development,
lean development originated from lean manufacturing and the Toyota Production System in Japan.
In these methods, they identified 3 general forms of waste, which they called in Japanese – ‘Muda‘
(meaning unproductive), ‘Mura‘ (unevenness, inconsistency) and ‘Muri‘ (over-burden,
unreasonableness).

In doing this, they also identified 7 particular types of waste in manufacturing:

1. Over-production
2. Unnecessary transportation
3. Inventory
4. Motion
5. Defects
6. Over-processing
7. Waiting

In lean software development, Tom and Mary Poppendieck translated these wastes into some things
more specifically relevant to software development. For instance:

 unnecessary code or functionality

 starting more than can be completed
 delay in the software development process
 unclear or constantly changing requirements
 bureaucracy
 slow or ineffective communication
 partially done work
 defects and quality issues
 task switching
A common agile development practice is the ‘retrospective’, which is the process of the team
meeting after each short iteration to discuss what went well, what didn’t, and what could be done
differently in the next iteration.

This iterative process of learning and continual improvement is an important part of identifying
waste and eliminating it. In my experience this is one of the key benefits of agile software
development.

Traditional software development and project management methods advocate a ‘lessons learnt’
process, but it generally takes place at the end of a project. By this time, things are forgotten, people
have changed, the context has changed, and the team may be disbanding to move on to another
project. As a result, the team may never really get a chance to put these learnings and changes into
practice.

With agile development, these retrospectives enable the team to make small improvements
regularly, and tackle changes in manageable, bite-sized pieces that can be actioned immediately.

Identifying and eliminating waste should not be a rare event conducted by process re-engineering
consultants every few years. It should be a regular process, built into regular iterations, determined
as much as possible by the team, and tackled in small, timely steps.

Making improvements little-but-often in this way creates a culture of continuous improvement – a

learning environment – which for some organisations could potentially give you the edge over
competitors.

So if you’re not doing it already, I urge you to hold regular retrospectives. This is one agile
development practice I can heartily recommend. Try to foster lively but healthy debate, critical but
constructive feedback, and try to drive out meaningful and actionable improvements that actually
help you to frequently identify and, more importantly, eliminate waste.

Operation Strategy Implementation:

Technology strategy:
Technology strategy (information technology strategy or IT strategy) is the overall plan
which consist of objective(s), principles and tactics relating to use of the technologies within
a particular organization. Such strategies primarily focus on the technologies themselves
and in some cases the people who directly manage those technologies. The strategy can be
implied from the organization's behaviors towards technology decisions, and may be
written down in a document.
Other generations of technology-related strategies primarily focus on: the efficiency of the
company's spending on technology; how people, for example the organization's customers
and employees, exploit technologies in ways that create value for the organization; on the
full integration of technology-related decisions with the company's strategies and operating
plans, such that no separate technology strategy exists other than the de facto strategic
principle that the organization does not need or have a discrete 'technology strategy'.
A technology strategy has traditionally been expressed in a document that explains how
technology should be utilized as part of an organization's overall corporate strategy and
each business strategy. In the case of IT, the strategy is usually formulated by a group of
representatives from both the business and from IT. Often the Information Technology
Strategy is led by an organization's Chief Technology Officer (CTO) or equivalent.
Accountability varies for an organization's strategies for other classes of technology.
Although many companies write an overall business plan each year, a technology strategy
may cover developments somewhere between 3 and 5 years into the future.
The United States identified the need to implement a technology strategy in order to
restore the country's competitive edge. In 1983 Project Socrates, a US Defense Intelligence
Agency program, was established to develop a national technology strategy policy.
Some of the decisions in a firm's technology strategy:

 Do we lead or follow in our adoption and development of new technologies?

o What are the boundaries of our innovation frontier (the maximum level of risk and
uncertainty we take in our innovation projects)?
o If and when we follow, do we acquire or imitate the pioneers?
 What aggregate level of investment do we make in developing and appropriating new
technologies? ("Appropriate"-- a verb in this context -- means to possess or own to the
exclusion of rivals.)
 What methods do we use to appropriate technologies?
o Patents, trade secrets, standards, speed
 What comprises our technology platform(s)-- the technologies shared across our
products, services, and processes?
 Do we "make" or "buy" our technologies?
o To what extent do we open our innovation process to the outside world?
o To what extent and in what ways do we engage partners and suppliers in technology
development?
 What role do we play in our technological ecosystem?

These are all very challenging decisions involving many factors related to the underlying
technologies themselves, the capabilities of the firm, and the environment in which the firm
operates.

CHALLENGES TO NEW PRODUCT DEVELOPMENT:

How does one make a successful product such as an iPad, an app, a drug, or a widget? You
might think that companies start with an idea about a product, something that seems cool
or somehow promising. They then build a prototype to prove the concept that the product
can indeed be built or made. And then they make more products and sell them.
If only it were that easy!
Unfortunately, products need a lot of work before they actually sell. The expected demand
may turn out to not be there; the price might be too high; the product might be clunky; or
there might be regulatory hurdles. Much of that work is done in product development.
Because product development is underestimated, most people think that the most
important part of innovation is invention, the glamorous moment where a genius thinks of
something new in a flash. But in reality ideas are a dime a dozen whereas product
development is the hard slog that really makes a difference.
NEW PRODUCT DEVELOPMENT:
In business and engineering, new product development (NPD) is the complete process of
bringing a new product to market. A product is a set of benefits offered for exchange and
can be tangible (that is, something physical you can touch) or intangible (like a service,
experience, or belief). There are two parallel paths involved in the NPD process: one
involves the idea generation, product design and detail engineering; the other involves
market research and marketing analysis. Companies typically see new product development
as the first stage in generating and commercializing new product within the overall strategic
process of product life cycle management used to maintain or grow their market share.
STAGES IN NEW PRODUCT DEVELOPMENT:
1. Idea Generation: is often called the "fuzzy front end" of the NPD process. Ideas for new
products can be obtained from basic research using a SWOT analysis (Strengths,
Weaknesses, Opportunities & Threats). Market and consumer trends, company's R&D Dept.,
competitors, focus groups, employees, salespeople, corporate spies, trade shows, or
ethnographic discovery methods (searching for user patterns and habits) may also be used
to get an insight into new product lines or product features. Idea Generation or
Brainstorming of new product, service, or store concepts - idea generation techniques can
begin when you have done your OPPORTUNITY ANALYSIS to support your ideas in the Idea
Screening Phase (shown in the next development step).
2. Idea Screening: The object is to eliminate unsound concepts prior to devoting resources
to them. The screeners should ask several questions:

 Will the customer in the target market benefit from the product?
 What is the size and growth forecasts of the market segment / target market?
 What is the current or expected competitive pressure for the product idea?
 What are the industry sales and market trends the product idea is based on?
 Is it technically feasible to manufacture the product?
 Will the product be profitable when manufactured and delivered to the customer at the
target price?

3. Concept Development and Testing: Develop the marketing and engineering details.
Investigate intellectual property issues and search patent databases

 Who is the target market and who is the decision maker in the purchasing process?
 What product features must the product incorporate?
 What benefits will the product provide?
 How will consumers react to the product?
 How will the product be produced most cost effectively?
4. Business Analysis: Estimate likely selling price based upon competition and customer
feedback. Estimate sales volume based upon size of market. Estimate profitability and
break-even point.

5. Beta Testing and Market Testing

 Produce a physical prototype or mock-up
 Test the product (and its packaging) in typical usage situations
 Conduct focus group customer interviews or introduce at trade show
 Make adjustments where necessary  Produce an initial run of the product and sell it in a
test market area to determine customer acceptance

6. Technical Implementation
 New program initiation
 Finalize Quality management system
 Resource estimation  Requirement publication
 Publish technical communications such as data sheets
 Contingencies - what-if planning

7. New Product Pricing

 Impact of new product on the entire product portfolio.
 Value Analysis (internal & external).
 Competition and alternative competitive technologies.

CHALLENGES TO NEW PRODUCT DEVELOPMENT:

1. Global competition
2. Time
3. Market potential
4. Technological change
5. Distribution 6. New features
7. Price
8. Critical unmet needs
9. Promotion
10. Resistance To Change
11. Market size

1. GLOBAL COMPETITION:
Global competition is often a major factor impacting the challenges of new product
development. Since the playing field is large and diverse, often spanning the globe, it may
be very difficult for companies to gather intelligence on competitors. A company may invest
heavily in a new product, yet be unaware that an overseas competitor is set to release a
similar product imminently. As a result, shepherding a new product from concept to market
is often done under intense time pressure, as product developers attempt to bring the
product to market ahead of their competition.

2. TIME
The companies today are facing time as one of the critical challenges in new product
challenge. Introducing the new product at the right time reduces the ambiguity about the
failure of the product. Giving the market a product at a time when there the need for such a
product/service is not required is surely a planned way to head for the edge.

3. MARKET POTENTIAL
A company needs to know their current and future competitors. In today’s economic
climate only two products will be successful in any given market. Unless your product is far
superior to your competition, you will not be able to enter a market successfully or retain
your leadership in the market. While it is initially fine to get to know your competition from
searching online, it cannot replace feedback from customers who use the product. Knowing
your future competitors will help you to develop a strategy to retain your competitive
advantage.

4. TECNOLOGICAL CHANGE
Rapid advancement of technology may be considered by many to be among the top
challenges of new product development. A technological arms race may put product
developers in a precarious position of uncertainty. Product developers may not know what
the next development might be. If a firm chooses a pathway to creating functionality using a
form of technology that may be soon obsolete, the company’s investors could lose a sizable
investment.

5. DISTRIBUTION:
Who's going to sell the product? Can you use the same distribution channels you currently
use? Can you use the same independent representatives or sales force? Is there sufficient
sales potential in the new product to convince a distributor, retailer, or agent to take on the
new line? There are significant up-front selling costs involved in introducing new products.
Everyone in the channel wants some assurance that the investment of time and money will
be recovered.

6. NEW FEATURES
Competitive advantage needs to be articulated to your customers: how does the product (or
attributes of the product) meet your customers’ unmet need that no other product can. This
is the reason why customers will use your product over any other product. Knowing your
competition will validate or invalidate your competitive advantage and potential market
leadership.

Adding new features can increase your overall product value and consequently, increase
your market share. What makes new product development different from product
development? While new product development can be revolutionary, product development
(i.e. adding new features) is an evolutionary process.

7. CRITICAL UNMET NEEDS

Statistics on the success rates of new products show that for every four new products that
enter development, only one becomes a commercial success. Research by Calantone and
Cooper shows that the number one reason for a new product to fail is the lack of attention
paid to the real needs and wants of the marketplace.
There are three key elements to meeting a customer’s need when developing new products
or services.
Desirability: the new product or service must be desirable, i.e. a person wants to use it
Purpose: the new product or service must have a useful purpose, i.e. a person will use it
User Experience: the new product or service must provide customer satisfaction, i.e. a
person is happy using it.

When creating and designing a new product or service it is important to consider the use of
the product (what does the product do), the level of usability of the product (how does it
work, can it be used comfortably) and the meaning that the product conveys.

8. MARKET SIZE
It is also important to keep an eye on the market size as well as the market potential for the
product in meeting the business goals of the company. The last thing you want to find out is
that there is no market for the product or that the customer isn’t buying the product. In
addition to meeting a critical unmet need you need to be in a market where you sell a
significant amount of product to develop more products and expand your business. It often
makes sense to outsource to someone who can determine the size of the market and the
market potential for the product in meeting the business goals of the company through
market research and talking to potential customers.

9. PRICE:
Setting the right price of the product before introducing it in the market is also a challenge
for the organisation. Suppose you set the price of your product almost same as that of your
competitor and assuming the product is similar in quality and features and the competitor
holds a good position in the marketplace, then the success of your product will depend on
the market and in my opinion your ‘LUCK’. Well good luck if you believe your luck is good.
Else anyone would surely believe that the product has hardly any chances of survival. Thus
setting your product at the right price at the right time is a challenge.

10. PROMOTION
Promoting a new product in the new market or in the current market is the job of every
marketer and the utmost requirement for the longevity of the product in the market. Firms
who hardly promote their product are rarely recognised by the market and thus remain a
mystery product for the consumers. Promotion techniques adopted by the firms from print
media to social websites is all a one step of the staircase approach of NPD. Thus promotion
is must process for the new product hit.

11. RESISTANCE TO CHANGE

Most customers, so the argument goes, are intrinsically conservative and resist innovation.
Apart from the few early adopters, whose enthusiasm for new products knows no bounds,
the broad mass of customers sees innovation as risky and finds new unproven products less
attractive than tried and tested alternatives. Consequently, any innovative product,
particularly if it has a high technological component, will meet resistance and will sell slowly
until it is perceived as safe by potential customers.
Time to market (TTM)
In commerce, time to market (TTM) is the length of time it takes from a product being
conceived until its being available for sale. TTM is important in industries where products
are outmoded quickly. A common assumption is that TTM matters most for first-of-a-kind
products, but actually the leader often has the luxury of time, while the clock is clearly
running for the followers.

Measuring TTM
here are no standards for measuring TTM, and measured values can vary greatly. First, there
is great variation in how different organizations define the start of the period. For example,
in the automotive industry the development period starts when the product concept is
approved. Other organizations realize that little will happen until the project is staffed,
which can take a long time after approval if developers are tied up on existing projects.
Therefore, they consider the start point when the project is fully staffed. The initial part of a
project—before approval has been given or full staffing is allocated—has been called
the fuzzy front end, and this stage can consume a great deal of time. Even though the fuzzy
front end is difficult to measure, it must be included in TTM measurements for effective
TTM management.
Next, definitions of the end of the TTM period vary. Those who look at product
development as engineering say the project is finished when engineering department
transfers it to manufacturing. Others define the conclusion as when they ship the first copy
of the new product or when a customer buys it. High-volume industries will often define the
end point in terms of reaching a certain production volume, such as a million units per
month.
Finally, TTM measurements vary greatly depending on complexity –- complexity of the
product itself, the technologies it incorporates, its manufacturing processes, or the
organizational complexity of the project (for example, outsourced components). New-to-
the-world products are much slower than derivatives of existing products. Some companies
have been successful in putting their products into categories of newness, but establishing
levels of complexity remains elusive.
Although TTM can vary widely, all that matters is an organization's TTM capability relative to
its direct competitors. Organizations in other industries may be much faster, but do not
pose a competitive threat, although one may be able to learn from them and adapt their
techniques.

The Nature Of Strategy Implementation

The implementation of organization strategy involves the application of the management
process to obtain the desired results. Particularly, strategy implementation includes
designing the organization's structure, allocating resources, developing information and
decision process, and managing human resources, including such areas as the reward
system, approacches to leadership, and staffing.

Each of these management functions has been the subject of extensive writing and research
by scholars and practitioners and has covered in management books.
Since full coverage of each management function is beyond the scope of this thesis, I shall
focus only on the factors that are most critical to effective implementation strategy.

Strategy Implementation can have a low success rate

• Failing to segment markets appropriately

• Paying too much for a new acquisition
• Falling behind competition in R&D
• Not recognizing benefit of computers in managing information

Successful Strategy Implementation

• Market goods & services well

• Raise needed working capital
• Produce technologically sound goods
• Sound information systems

Process Choice:
The flow structure of the process used to make or deliver a product or service impacts
facility layout, resources, technology decisions, and work methods. The process architecture
may be an important component in the firm's strategy for building a competitive advantage.

When characterized by its flow structure, a process broadly can be classified either as a job
shop or a flow shop. A job shop process uses general purpose resources and is highly
flexible. A flow shop process uses specialized resources and the work follows a fixed path.
Consequently, a flow shop is less flexible than a job shop.

Finer distinctions can be made in the process structure as follows:

 Project - Example: building construction

 Job shop - Example: print shop
 Batch process - Example: bakery
 Assembly line - Example: automobile production line
 Continuous flow - Example: oil refinery
These process structures differ in several respects such as:

 Flow - ranging from a large number of possible sequences of activities to only one
possible sequence.
 Flexibility - A process is flexible to the extent that the process performance and cost
is independent of changes in the output. Changes may be changes in production
volume or changes in the product mix.
 Number of products - ranging from the capability of producing a multitude of
different products to producing only one specific product.
 Capital investment - ranging from using lower cost general purpose equipment to
expensive specialized equipment.
 Variable cost - ranging from a high unit cost to a low unit cost.
 Labour content and skill - ranging from high labour content with high skill to low
content and low skill.
 Volume - ranging from a quantity of one to large scale mass production.

The following sections describe each of the architectures, highlighting their differentiating
characteristics:

Project

In a project, the inputs are brought to the project location as they are needed; there is no
flow in the process. Technically, a project is not a process flow structure since there is no
flow of product - the quantity produced usually is equal to one. It is worthwhile, however, to
treat it as a process structure here since it represents one extreme of the spectrum.

Projects are suitable for unique products that are different each time they are produced.
The firm brings together the resources as needed, coordinating them using project
management techniques.
Job Shop

A job shop is a flexible operation that has several activities through which work can pass. In
a job shop, it is not necessary for all activities to be performed on all products, and their
sequence may be different for different products.

To illustrate the concept of a job shop, consider the case of a machine shop. In a machine
shop, a variety of equipment such as drill presses, lathes, and milling machines is arranged
in stations. Work is passed only to those machines required by it, and in the sequence
required by it. This is a very flexible arrangement that can be used for wide variety of
products.

A job shop uses general purpose equipment and relies on the knowledge of workers to
produce a wide variety of products. Volume is adjusted by adding or removing labour as
needed. Job shops are low in efficiency but high in flexibility. Rather than selling specific
products, a job shop often sells its capabilities.

Batch Process

A batch process is similar to a job shop, except that the sequence of activities tends to be in
a line and is less flexible. In a batch process, dominant flows can be identified. The activities,
while in-line, are disconnected from one another. Products are produced in batches, for
example, to fill specific customer orders.

A batch process executes different production runs for different products. The disadvantage
is the setup time required to change from one product to the other, but the advantage is
that some flexibility in product mix can be achieved.

Assembly Line Process

Like a batch process, an assembly line processes work in fixed sequence. However, the
assembly line connects the activities and paces them, for example, with a conveyor belt. A
good example of an assembly line is an automobile plant.

Continuous Flow Process

Like the assembly line, a continuous flow process has a fixed pace and fixed sequence of
activities. Rather than being processed in discrete steps, the product is processed in a
continuous flow; its quantity tends to be measured in weight or volume. The direct labour
content and associated skill is low, but the skill level required to oversee the sophisticated
equipment in the process may be high. Petroleum refineries and sugar processing facilities
use a continuous flow process.
Process Selection
The primary determinants of the optimal process are the product variety and volume. The
amount of capital that the firm is willing or able to invest also may be an important
determinant, and there often is a trade-off between fixed and variable cost.

The choice of process may depend on the firm's marketing plans and business strategy for
developing a competitive advantage. From a marketing standpoint, a job shop allows the
firm to sell its capabilities, whereas flow-shop production emphasizes the product itself.
From a competitive advantage perspective, a job shop helps a firm to follow a
differentiation strategy, whereas a flow shop is suited for a low cost strategy.

The process choice may depend on the stage of the product life cycle. In 1979 Robert H.
Hayes and Steven C. Wheelwright put forth a product-process matrix relating process
selection to the product life cycle stage. For example, early in a product's life cycle, a job
shop may be most appropriate structure to rapidly fill the early demand and adjust to
changes in the design. When the product reaches maturity, the high volumes may justify an
assembly line, and in the declining phase a batch process may be more appropriate as
product volumes fall and a variety of spare parts is required.

The optimal process also depends on the local economics. The cost of labour, energy,
equipment, and transportation all can impact the process selection.

A break-even analysis may be performed to assist in process selection. A break-even chart

relates cost to levels of demand in various processes and the selection is made based on
anticipated demand.

Order-winning / Order Qualifying (Hill)

 Order qualifying in order to be able to compete in the market place.
 Order winning in order to win in the market place.
 Also pre-qualifying criteria, such as reputation (Brand), know how, expertise
(particularly for Jobs and Projects).
 Different customers will have different attributes for the same product . flight
simulators. Order winning become order qualifying over time. Must NOT see order
qualifying as inferior ~ fundamental !
 Also pre-qualifying criteria (intangibles), reputation, brand, know how, expertise ~
hence, process choice and layout
 dictate basis of competition and customers ie McDonald vs. restaurant.

Hybrid Processes
A hybrid dispute resolution process combines elements of two or more traditionally
separate processes into one. The most common hybrid process is mediation-arbitration, or
"med-arb", which uses the same individual or dispute resolution forum first as a mediator,
and then if necessary, as an arbitrator. This is distinguished from the common circumstance
where more than one type of dispute resolution procedure is provided for in sequence, such
as a grievance procedure that provides first for negotiation, then mediation, and finally for
arbitration, where each of these processes is carried out by a different person.

Med-arb or other hybrid processes are generally used where parties believe a given dispute
is likely to require elements of two or more processes, and/or where they believe that an
individual or forum is available who has the skills necessary to enact more than one process,
with a consequent saving of time and expense.

Med-arb was first used in U.S. public-sector collective bargaining, particularly for public
safety groups (e.g. police and fire departments) where strikes are generally illegal. In many
states, the state legislature has called for a hybrid system to resolving these disputes
peacefully and efficiently.

Usually such systems call for mediation, after which either party can compel arbitration if
the mediation effort fails to reach an agreement. The mediation in this type of case is often
actually the second attempt at mediation, following an earlier "pure mediation" effort by
the labor-management mediation agency of that state. The hybrid process is invoked if the
initial, agency attempt at mediation fails.

Such "duplicate mediation" has two advantages: first, neutrals who practice as mediator-
arbitrators are sometimes able to apply skills that agency neutrals may not possess to the
same degree (though often, the agency neutrals are themselves highly skilled); second, and
more important, is that a mediator-arbitrator's suggestions carry more weight than those of
a "pure mediator," even when the suggestions are similar or identical. This is because the
mediator-arbitrator may have the final decision if the case is unresolved. This gives the
"neutral" more perceived power, even in the mediation, and most certainly in the
arbitration phase of the process.

Med-arb in these contexts has generally been considered effective, as illegal strikes are very
rare, and most parties believe the process works effectively and promptly.

However, parties sometimes object to the amount of power a mediator-arbitrator has.

Typically, arbitrators never meet with the parties separately, but only meet together where
both sides can hear (and rebut) all the arguments the other side makes. In addition,
arbitrators avoid reaching any conclusions or dropping hints as to the decision until the last
argument has been fully expressed.

This mode of working is greatly different from the typical working methods of a mediator,
which usually include meeting privately with each party, and at times, trying to persuade a
party to make a particular concession, or to try another approach to their negotiations. If
the mediator is also an arbitrator, such pressure can take the form of an implied threat of an
adverse decision if one party is seen as being "unreasonable."

In such cases, the losing party may believe (rightly or wrongly) that the decision was
influenced by private conversations between the mediator and the opposing party.
Concerns about such issues have led some jurisdictions to opt for mediation followed by
separate arbitration instead of med-arb as the public service dispute resolution procedure
of choice.

Other hybrid combinations of role also exist. The combination of the roles of facilitator and
mediator is so common that many believe that the role of a mediator can hardly be fulfilled
without taking on a facilitator's role as well — though the converse is not true. And it is
quite common for a judge to take on the role of a mediator. While this inherently triggers
the same potential concerns as mediation-arbitration, it is indisputable that many cases
have been resolved, and often to the satisfaction of all parties, when a judge has engaged in
adroit and sensitive intervention along these lines.

Procedure
Company or plant based profiles:
Decisions for product reallocation:
Definition of Resource Allocation
Resource allocation is a process and strategy involving a company deciding where scarce
resources should be used in the production of goods or services. A resource can be
considered any factor of production, which is something used to produce goods or services.
Resources include such things as labor, real estate, machinery, tools and equipment,
technology, and natural resources, as well as financial resources, such as money.

Method of Resource Allocation

In an economist's perfect world, which doesn't exist, of course, resources are optimally
allocated when they are used to produce goods and services that match consumers' needs
and wants at the lowest possible cost of production. Efficiency of production means fewer
resources are expended in producing goods and services, which allows resources to be used
for other economic activities, such as further production, savings, and investment. This
basically boils down to creating what customers want as cheaply and efficiently as possible.
Product Allocation Planning
Well, one of the first question is how does the tool ensure right amount of supply is being
allocated to the various demand channels, and how does it share supply when faced with a
supply constraint?

This presents us with the two important aspects of product allocation planning, that is,
Planning Strategy and Managing Supply Constraints. I'll focus on the first aspect in this post.

Setting up the allocation planning strategy

The supply gets distributed based on the setup of allocation parameters. This in turn
depends on the mid term sales strategy and the product life cycle stage. I have tried to laid
down a sequence of the basic and important strategies that need to be arrived at:

One of the first steps is deciding on what level of detail you want the allocation to be done.
The allocation plan can range from a global view of demand and supply to a refined,
customer specific level that considers country or sales area specific supply and demands. It
is a good practice to start from a global allocation plan that is based on global product and
sales strategy, and gives an allocation across geographies and sales channels. This is further
refined to geography or channel specific allocation plan versions that are derived from the
global allocation plan. This can be further broken down to customer/customer group
specific plans that are eventually communicated to the ATP module of the OM system. In
order to implement this, the tool must be able to derive a supply projection at various levels
of aggregation

The next important step to start allocation planning is deriving the right set of groupings you
want to allocate for. For e.g.: It is imperative to have an individual allocation plan for your
top 20% customers in a particular sales area, but the rest 80% can be clubbed in a sets of
tier 1, 2 and 3 customers. Similarly, an individual allocation plan could be created for
geographies like USA, versus a combined allocation plan for a set of geographies like the
South Americas.

Following these two decisions, arriving at the right amount of supply for a sales channel or
customer in a particular week is the most important strategy to drive the allocation plan.
This is usually based on targets days/weeks of inventory that are derived keeping in view the
sales plans, customer importance and delivery lead times. The allocation quantity for a given
week for a customer or channel would be the average sales spreading across the target
inventory weeks, and netting out whatever inventory the customer or channel already
holds.

Setting allocation priorities is the next key parameter. Depending on the level of allocation
plan being derived, these priorities are applied among various levels, for e.g.: various sales
channels or geographies, or even at the customer level. The tool should start distributing
supply to allocation sets in the order of priorities defined, so that the higher priority
allocation sets get satisfied first.
What is Organizational Downsizing?
Hal Hudson owns a hot dog stand, known as Hal's Hot Dogs, which serves customers inside
the Pelican's Baseball Stadium in Palm Beach, Florida. So that Hal can serve the maximum
number of customers in the shortest amount of time, he structured his organization with a
high level of work specialization. Eleven employees work at the stand and each has a very
specialized job.
For instance, there is one worker whose only job is to put onions on the hotdogs and a
different worker whose job it is to add relish. Hal's business was doing great when the
season started, but the Pelicans have been on a losing streak lately, and fewer customers
are coming to the ballpark and buying hot dogs.
Hal's hotdog stand has started losing money, and in order to continue operations, Hal will
have to make some difficult decisions regarding the structure of his organization. What will
Hal do? Before we learn how Hal Hudson handles his hotdog hardship, let's define
organizational structure. Organizational structure defines how tasks are divided, grouped
and coordinated in organizations.
When the management of an organization determines that their organization is not
operating at peak efficiency, they typically look for ways to make the organization more
productive. This is frequently accomplished via organizational downsizing, which is a
reduction in organizational size and operating costs implemented by management in order
to improve organizational efficiency, productivity and/or the competitiveness of the
organization.
Organizational downsizing affects the work processes of an organization since the end result
of the downsizing is typically fewer people performing the same workload that existed
before the downsizing took place. The act of downsizing results in two categories of
people: Victims, the people who involuntarily lose their jobs due to organizational
downsizing, and survivors, the employees who remain after organizational downsizing takes
place.

Preparing for Downsizing

In order for an organizational downsizing to be most effective, management must
communicate openly and honestly with their employees regarding the reason for the
downsizing and the downsizing plan. Managers also need to listen to employees and
provide comfort when necessary in order to keep the morale high among the survivors of
the downsizing.
When Hal's customers first began to decrease, he realized that he could no longer afford to
pay 11 workers to work at his hot dog stand due to the declining profits. Before talking to
his workers, Hal developed a downsizing plan to eliminate the workers who had been with
him for the least amount of time.
Hal explained the situation to his workers and told them that due to decreasing sales, he
was going to have to let the three newest employees go. This downsizing resulted in
changes to the work process at the hot dog stand. Hal reduced the amount of work
specialization and combined tasks among the survivors so that each worker was now
responsible for more than one task. For example, the worker who used to put onions on the
hot dogs was put in charge of onions, relish and sauerkraut.
In order to successfully downsize an organization, it is also important that management take
steps to prepare the workforce in advance of the downsizing. Proper planning
includes outplacement strategies, which is the process of assisting former employees in
finding new employment and training and re-skilling the remaining workers into their new
jobs. By treating the victims of downsizing fairly and compassionately, the survivors of the
downsizing are more likely to remain loyal to their organization.
Hal's initial downsizing reduced the amount of money his hotdog stand was losing, and he
expected that lowering his labor cost would make him more profitable. Unfortunately, the
Pelicans kept losing, customers continued to stay away and Hal soon realized he would need
further downsizing in order to bring his hotdog stand back to profitability.
Before this second wave of downsizing, Hal was able to find jobs for four of his workers as
ushers at the baseball park. The act of outplacing his former workers showed the remaining
survivors that Hal cared about what happened to his former workers and helped increase
the organizational commitment of the survivors. Hal was now operating with four workers,
less than half of the workforce he started the season with, and everyone was performing at
least two tasks instead of one.
Evaluating various tradeoffs alternatives:
Focused manufacturing:
Product or process focus:

 What is process focus strategy?

A production facility organized around processes to facilitate low-volume high-variety
productions.

All operations are grouped according to the type of process. In a factory these process might
be departments devoted to welding, grinding and painting. In an office the process might be
account payable, sales and payroll. Such facilities are process focused in terms of
equipment, layout and supervision. They provide a high degree of product flexibility as
product moves between processes. Each process is designed to provide a high variety of
activities and handle frequent changes. Consequently they are also called intermittent
process.

The system is also called ‘job shop´ as the product moves from one department to another
in small batches that are determine by the customer’s order.

It is usually used to produce small quantity of different items on general purpose

machineries

 What are Process strategy main Characteristics?

 Facilities are organized around specific activities or processes
 General purpose equipment and skilled personnel
 High degree of product flexibility
 Typically high costs and low equipment utilization
 Product flows may vary considerably making planning and scheduling a challenge
Some examples of the process focused are a hospital, a machine shop and a bank.

We are going to explain Arnold Palmer Hospital, which is a clear example of Process
Focused.

Imagine a diverse group of patients entering Arnold Palmer Hospital, a process-focused

facility, to be routed to specialized departments, treated in a distinct way, and then exiting
as uniquely cared for individuals.

To conclude, as each process, process focused supposes some positive aspects for the
company and some negatives ones:
1. Positive aspects implementing the process focused:
-Greater product flexibility

-More general propose equipment

-Lower initial capital investment

1. Negative aspects of implementing the process focused:

-More highly trained personal

-More difficult production planning and control

-Low equipment utilization (5%)

-Requires more time if the system operates on one or more processes at a time

-High Variable costs

Make or Buy Decision:

The make-or-buy decision is the act of making a strategic choice between producing an item
internally (in-house) or buying it externally (from an outside supplier). The buy side of the
decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm
that has developed a product or part—or significantly modified a product or part—is having
trouble with current suppliers, or has diminishing capacity or changing demand.
Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the
strategic level is the more long-range of the two. Variables considered at the strategic level
include analysis of the future, as well as the current environment. Issues like government
regulation, competing firms, and market trends all have a strategic impact on the make-or-
buy decision. Of course, firms should make items that reinforce or are in-line with their core
competencies. These are areas in which the firm is strongest and which give the firm a
competitive advantage.
The increased existence of firms that utilize the concept of lean manufacturing has
prompted an increase in outsourcing. Manufacturers are tending to purchase subassemblies
rather than piece parts, and are outsourcing activities ranging from logistics to
administrative services. In their 2003 book World Class Supply Management, David Burt,
Donald Dobler, and Stephen Starling present a rule of thumb for out-sourcing. It prescribes
that a firm outsource all items that do not fit one of the following three categories: (1) the
item is critical to the success of the product, including customer perception of important
product attributes; (2) the item requires specialized design and manufacturing skills or
equipment, and the number of capable and reliable suppliers is extremely limited; and (3)
the item fits well within the firm's core competencies, or within those the firm must develop
to fulfill future plans. Items that fit under one of these three categories are considered
strategic in nature and should be produced internally if at all possible.
Make-or-buy decisions also occur at the operational level. Analysis in separate texts by Burt,
Dobler, and Starling, as well as Joel Wisner, G. Keong Leong, and Keah-Choon Tan, suggest
these considerations that favor making a part in-house:

 Cost considerations (less expensive to make the part)

 Desire to integrate plant operations
 Productive use of excess plant capacity to help absorb fixed overhead (using existing
idle capacity)
 Need to exert direct control over production and/or quality
 Better quality control
 Design secrecy is required to protect proprietary technology
 Unreliable suppliers
 No competent suppliers
 Desire to maintain a stable workforce (in periods of declining sales)
 Quantity too small to interest a supplier
 Control of lead time, transportation, and warehousing costs
 Greater assurance of continual supply
 Provision of a second source
 Political, social or environmental reasons (union pressure)
 Emotion (e.g., pride)

Factors that may influence firms to buy a part externally include:

 Lack of expertise
 Suppliers' research and specialized know-how exceeds that of the buyer
 cost considerations (less expensive to buy the item)
 Small-volume requirements
 Limited production facilities or insufficient capacity
 Desire to maintain a multiple-source policy
 Indirect managerial control considerations
  Procurement and inventory considerations
 Brand preference
 Item not essential to the firm's strategy

V ALUE C HAIN A PPROACH

Step 1: Value Chain Selection

Definition: A value chain can be defined as all the firms that buy and sell from each other in
order to supply a particular set of products or services to final consumers. A value chain
includes designers, producers, processors, input suppliers, wholesalers, and retailers and is
defined by a particular finished product or service (wood furniture, dried tomatoes, clothing
production, legal consulting, etc.). [this same definition can be used to describe a
"subsector"]

During this step, AFE uses selection criteria to choose promising value chains. These criteria
could include:

 Unmet demand in the market for particular products

 Potential for increase in household incomes
 Number of MSMEs in the value chain
 Potential for employment generation
 Existence of linkages conducive to inter-firm collaboration
 Potential for positive coordination and synergy with donors and government
 Representation of women in the value chain

Once criteria are established they are used to compare different value chains. Those that
rank the highest are then be chosen for more detailed analysis.
Step 2: Value Chain Analysis

During this step, AFE carries out interviews and research to gain a greater understanding of
market trends and industry dynamics including value chain participants, their roles, and
interrelationships. The goal of this step in the approach is to determine key issues hindering
MSME growth and competitiveness.

A value chain map is developed that graphically presents all the relevant private sector
actors and their relationships with one another. Based on the initial findings of this map,
interviews with market-based participants and “key informants”, both large and small, are
conducted to identify major constraints and opportunities throughout the value chain.
These can be grouped in the following categories:

 technology/product development,
 market access,
 input supply,
 management and organization,
 policy,
 finance, and
 infrastructure

Step 3: Identification of Commercially Viable Solutions

During this step, a variety of methods are used to identify and prioritize sustainable, market-
based solutions (potential at this point) that can contribute to competitiveness of the
targeted value chain and address the constraints and opportunities identified in Step 2.

Step 4: Assessment of Market-based Solutions

During this step, a variety of methods are used to assess the market-based solutions
identified in Step 3. Areas of assessment include:

 identification of existing/potential providers of targeted market-based solutions

 challenges to the commercial viability of the targeted solutions
 satisfaction with and awareness of market-based solutions currently provided
 the number of MSMEs that could benefit from the market-based solution

Private sector “lead firms” in the value chain are assessed as to whether they have the
requisite incentives and ability to provide needed products and support services to MSMEs
in a commercially viable and sustainable manner. Discussions include the provision of
"embedded" services by these firms to MSMEs that take place as part of their commercial
relationships.

In completing the assessment of a market-based solution, interviews are conducted with

both providers (supply-side) and users (demand-side) of the targeted solution. Information
is collected on the following:
  existing providers
 market size and penetration
 frequency of use
 demand and supply side constraints of the solution (click here for an illustrative list)
 satisfaction with solution
 awareness of the solution
 proposed provider(s) to target for interventions (including how they would cover the
costs of providing the solution)
 impact of the solution on the value chain

Step 5: Identification and Selection of Facilitation Activiti es

During this step, the AFE works with market actors to identify program interventions that
can support MSME and value chain development. These would include building the capacity
of lead firms and others (market-based solution providers) to better address the constraints
of their industry and the upgrading needs of MSMEs.

AFE uses focus group discussions with representatives from various actors in the targeted
value chain to identify program interventions based on the realities in their industry. This
results in the identification and selection of appropriate facilitation activities which will
promote sustainable solutions to value chain constraints and enhance the overall
competitiveness of participating MSMEs.

Step 6: Performance Measurement

AFE then develops performance measurement systems based on the interventions that
have been identified. This system includes indicators for both MSME and industry-wide
benefits. It also includes indicators to measure the sustainability of impact.

JIT Just-in-Time manufacturing

`Just-in-time' is a management philosophy and not a technique.

It originally referred to the production of goods to meet customer demand exactly, in time,
quality and quantity, whether the `customer' is the final purchaser of the product or
another process further along the production line.

It has now come to mean producing with minimum waste. "Waste" is taken in its most
general sense and includes time and resources as well as materials. Elements of JIT include:

 Continuous improvement.
o Attacking fundamental problems - anything that does not add value to the
product.
o Devising systems to identify problems.
o Striving for simplicity - simpler systems may be easier to understand, easier to
manage and less likely to go wrong.
o A product oriented layout - produces less time spent moving of materials and
parts.
 o Quality control at source - each worker is responsible for the quality of their
own output.
o Poka-yoke - `foolproof' tools, methods, jigs etc. prevent mistakes
o Preventative maintenance, Total productive maintenance - ensuring machinery
and equipment functions perfectly when it is required, and continually
improving it.
 Eliminating waste. There are seven types of waste:
o waste from overproduction.
o waste of waiting time.
o transportation waste.
o processing waste.
o inventory waste.
o waste of motion.
o waste from product defects.
 Good housekeeping - workplace cleanliness and organisation.
 Set-up time reduction - increases flexibility and allows smaller batches. Ideal batch
size is 1item. Multi-process handling - a multi-skilled workforce has greater
productivity, flexibility and job satisfaction.
 Levelled / mixed production - to smooth the flow of products through the factory.
 Kanbans - simple tools to `pull' products and components through the process.
 Jidoka (Autonomation) - providing machines with the autonomous capability to use
judgement, so workers can do more useful things than standing watching them work.
 Andon (trouble lights) - to signal problems to initiate corrective action.

Lean Manufacturing:
The core idea is to maximize customer value while minimizing waste. Simply, lean means
creating more value for customers with fewer resources.

A lean organization understands customer value and focuses its key processes to
continuously increase it. The ultimate goal is to provide perfect value to the customer
through a perfect value creation process that has zero waste.

To accomplish this, lean thinking changes the focus of management from optimizing
separate technologies, assets, and vertical departments to optimizing the flow of products
and services through entire value streams that flow horizontally across technologies, assets,
and departments to customers.

Eliminating waste along entire value streams, instead of at isolated points, creates processes
that need less human effort, less space, less capital, and less time to make products and
services at far less costs and with much fewer defects, compared with traditional business
systems. Companies are able to respond to changing customer desires with high variety,
high quality, low cost, and with very fast throughput times. Also, information management
becomes much simpler and more accurate.
Lean for Production and Services
A popular misconception is that lean is suited only for manufacturing. Not true. Lean applies
in every business and every process. It is not a tactic or a cost reduction program, but a way
of thinking and acting for an entire organization.

Businesses in all industries and services, including healthcare and governments, are using
lean principles as the way they think and do. Many organizations choose not to use the
word lean, but to label what they do as their own system, such as the Toyota Production
System or the Danaher Business System. Why? To drive home the point that lean is not a
program or short term cost reduction program, but the way the company operates. The
word transformation or lean transformation is often used to characterize a company
moving from an old way of thinking to lean thinking. It requires a complete transformation
on how a company conducts business. This takes a long-term perspective and perseverance.

The term "lean" was coined to describe Toyota's business during the late 1980s by a
research team headed by Jim Womack, Ph.D., at MIT's International Motor Vehicle Program.

The characteristics of a lean organization and supply chain are described in Lean Thinking,
by Womack and Dan Jones, founders of the Lean Enterprise Institute and the Lean
Enterprise Academy (UK), respectively. While there are many very good books about lean
techniques, Lean Thinking remains one of the best resources for understanding "what is
lean" because it describes the thought process, the overarching key principles that must
guide your actions when applying lean techniques and tools.

Strategic Resource Management:

Human Resource Management

The best way to understand strategic human resources management is by comparing it to
human resource management. Human resource management (HRM) focuses on recruiting
and hiring the best employees and providing them with the compensation, benefits,
training, and development they need to be successful within an organization. However,
strategic human resource management takes these responsibilities one step further by
aligning them with the goals of other departments and overall organizational goals. HR
departments that practice strategic management also ensure that all of their objectives are
aligned with the mission, vision, values, and goals of the organization of which they are a
part.

Strategic Human Resource Management

Strategic human resource management is the practice of attracting, developing, rewarding,
and retaining employees for the benefit of both the employees as individuals and the
organization as a whole. HR departments that practice strategic human resource
management do not work independently within a silo; they interact with other departments
within an organization in order to understand their goals and then create strategies that
align with those objectives, as well as those of the organization. As a result, the goals of a
human resource department reflect and support the goals of the rest of the organization.
Strategic HRM is seen as a partner in organizational success, as opposed to a necessity for
legal compliance or compensation. Strategic HRM utilizes the talent and opportunity within
the human resources department to make other departments stronger and more effective.

Importance of Strategic HRM

When a human resource department strategically develops its plans for recruitment,
training, and compensation based on the goals of the organization, it is ensuring a greater
chance of organizational success. Let's think about this approach in relation to a basketball
team, where Player A is the strategic HR department, and Players B through E are the other
departments within the organization. The whole team wants to win the ball game, and they
all may be phenomenal players on their own, but one great player doesn't always win the
game. If you've watched a lot of sports, you understand that five great players won't win the
game if each one of those five great players is focused on being the MVP.
That's not how a basketball team wins, and it's not how an organization wins either. A team
wins when its members support each other and work together for a common goal. Player A,
our strategic HR department, must work with players B, C, D and E, our different
organizational departments. They must run plays that they have planned out beforehand,
assist when necessary to help another player get the basket, and compensate for the
weaknesses of one in order to create a stronger team as a whole. When a team works
together to reach that common goal, only then can they be truly successful.
You could also look at strategic HRM as the team captain or coach, as his or her
responsibilities are a little bit different from those of the other players. Human resources
departments are charged with analyzing the changes that need to occur with each 'player'
or department and assisting them in strengthening any weaknesses. Strategic human
resource management then is the process of using HR techniques, like training, recruitment,
compensation, and employee relations to create a stronger organization, one employee at a
time.
Describe the Unique Challenges of Strategic Resource Management for a Manufacturing
Company
Strategic resource management involves creating plans to source, store, use and dispose of
the materials needed to do business. Manufacturing businesses face unique challenges in
strategic resource management, as they often use basic raw materials and natural resources
as inputs rather than finished or semi-finished components. Understanding the unique
challenges manufacturers face in this area can help you to address strategic resource
management issues in your organization or to more fully understand the issues that your
suppliers face.
Supplier and Sourcing Ethics
All companies can benefit from applying strict ethical guidelines to their supplier selection
process, but manufacturers can face additional challenges in this area. Manufacturers'
suppliers are often raw material harvesters, such as logging companies, stone quarries and
oil refineries. Sourcing materials such as lumber can have direct negative impacts on the
environment, regardless of how ethically a supplier treats its employees or how honest it is
in its business dealings. Using lumber as an example, a manufacturer can choose to only do
business with suppliers that replant a tree for each one they harvest, or a manufacturer can
choose to regularly donate money to tree-planting nonprofits to compensate for the lumber
it consumes.
Pricing
The price of raw materials can fluctuate more wildly than finished or semi-finished
components. Consider computer-chip manufacturers that use gold or silver in their
production processes, for example. Gold prices tend to rise as general economic conditions
worsen, making materials more expensive for chipmakers at the same time as demand
decreases. Manufacturers can deal with this unique challenge by negotiating time-bound
price contracts with suppliers, stipulating a single purchase price in the future in return for
guaranteed purchases.
Supply Issues
Supply issues can present distinct challenges for manufacturers, as their production inputs
may not always be available in reliable quantities. Consider a processed-food manufacturer
relying on a local fishing economy, for example. Local fisherman rarely bring in the same size
catches every time they come to shore, and different years and seasons can affect catch
sizes in different ways. If a manufacturer cannot obtain sufficient quantities of raw materials
from a supplier with whom it has a price contract, the manufacturer may be forced to meet
their excess need through a supplier who charges a higher price or provides lower quality
materials. On the other hand, a supply shortage can lead manufacturers to discover more
reliable and cost-efficient suppliers to work with.
Human Resources
Manufacturers can realize significant financial benefits from international outsourcing or by
setting up wholly owned subsidiaries in different countries. This introduces new challenges
to strategic resource management decisions by forcing companies to operate within
multiple legal environments governing the employment relationship. Spreading human
resources across the globe also introduces distribution challenges for raw-material inputs
and finished-goods outputs. If a manufacturer locates a production facility in China while
sourcing lumber from Guatemala, for example, the lumber has to be shipped across an
ocean before it can be used in production, introducing additional costs and negative
environmental impacts.

Operational approaches to improving delivery system:

Controlling operations:
Operating activities (or operations) are the ongoing activities that a business is involved in -
e.g. processing a customers order in an Argos store, producing a biro or razor in a BIC plant,
etc. It is important that these operations are controlled effectively to make sure that
managers achieve desired objectives.

For example, production managers may have created a schedule for a particular line
whereby 1,000 razors are produced in an hour with zero defects.
If it is noticed that there is a defect to a single razor it is essential to put into effect control
procedures so that the line can be put right immediately.

Production variety is inevitable and this can lead to organisational problems. For example,
an increase in the number of component types will require more space in the stores. Control
of variety is essential in reducing storage space, the number of production runs, types of
machines, production aids and in making production control easier. As firms move towards
specialisation, opportunities increase for mass production. Mass production is the
production of goods on a large scale.
Typically the greater the volume of mass production, the greater the benefits of economies
of scale as the firm moves towards its lowest unit cost size. It is often assumed that mass
production will affect quality.
However, this is rarely the case. With mass production, quality will be more uniform and will
not depend upon the scale of production but upon the skill of managers.

Automation and robotics have enabled managers to gain far more control over operating
systems. Computer Aided Design (CAD) enables high levels of efficiency in the design of
products. Computer Aided Manufacturing enables high levels of control and standardisation
in manufacturing processes.

CAD/CAM - computer-aided design, and computer-aided manufacturing. A product is

designed with a CAD programme and then the design is translated into instructions which
are transmitted to machines that are dedicated to the manufacture of items such as car
parts, or the finished assembly.

What are 'Key Performance Indicators - KPI'

Key performance indicators (KPI) are a set of quantifiable measures that a company uses to
gauge its performance over time. These metrics are used to determine a company's
progress in achieving its strategic and operational goals, and also to compare a company's
finances and performance against other businesses within its industry.

Financial KPIs

Some of the most common KPIs revolve around revenue and profit margins. The most basic
profit-based metric is net profit. Also known as the bottom line, net profit represents the
amount of revenue that remains as profit for a given period after accounting for all the
company's expenses, taxes and interest payments for the same period. Since net profit is
calculated as a dollar amount, it must be converted into a percentage of revenue, or profit
margin, to be used in comparative analysis. If the standard net profit margin for a given
industry is 50%, for example, a new business in the industry knows it needs to work toward
meeting or beating that figure to be competitive. The gross profit margin, which measures
revenues after accounting for only those expenses directly associated with the production
of goods for sale, is another common profit-based KPI.

The current ratio is a common financial KPI and is calculated by dividing a company's current
assets by its current debts. A financially healthy company typically has more than
enough cash and cash equivalents on hand to meet all its financial obligations for the
current 12-month period. However, different industries use different amounts of debt
financing, so comparing a company's current ratio to those of other businesses within the
same industry is a good way to establish whether the business' cash flow is in line with
industry standards. A company's financial KPIs are stated in its annual report.

Nonfinancial KPIs

Not all KPI metrics are related directly to a company's cash flow. A business' success
depends on more than its balance of cash and debt; it depends on its relationship to its
customers and employees. Some common nonfinancial KPIs include measures of foot
traffic YOY or month over month, employee turnover, the number of repeat customers
versus new customers, and various quality metrics. The specific metrics a company tracks
are dictated by its current aims and may change over time as the business evolves, achieves
old goals and sets new ones.

PQCDSM (Productivity, Quality, Cost, Delivery Time, Safety,

Morale):
Another series of gears connected these to numerous smaller shafts on the third level that
represented the day-to-day activities of the individual departments and temporary teams all
trying to accomplish PQCDSM. While some of them might be temporarily inactive for
various reasons (teams that completed their project), most of them are making a humming
sound spinning at very high rpm’s as they focus on accomplishing the 1-year plan that is
being driven by the long term plan. Lines of communications between the three shafts
provide feedback to the higher levels to adjust their focus if necessary.

Benefits of TPM Implementation

The literature documents dramatic tangible operational improvements resulting from

successful TPM implementation. “Companies practicing TPM invariably achieve startling
results, particularly in reducing equipment breakdowns, minimizing idling and minor stops
(indispensable in unmanned plants), lessening quality defects and claims, boosting
productivity, trimming labor and costs, shrinking inventory, cutting accidents, and
promoting employee involvement (as shown bysubmission of improvement suggestions).”
(Suzuki 1994 p. 3) He cites, for example, PQCDSM (Productivity, Quality, Cost, Delivery,
Safety, Morale) improvements forearly TPM implementers in Japan.

 P – Productivity.
Net productivity up by 1.5 to 2.0 times.
Number of equipment breakdowns reduced by 1/10 to 1/250 of baseline.
Overall plant effectiveness 1.5 to 2.0 times greater.
 Q – Quality.
Process defect rate reduced by 90%.
Customer returns/claims reduced by 75%.
 C – Cost: Production costs reduced by 30%.
 D – Delivery: Finished goods and Work in Progress (WIP) reduced by half.
  S – Safety.
Elimination of shutdown accidents.
Elimination of pollution incidents.
 M – Morale: Employee improvement suggestions up by 5 to 10 times.

Tajiri and Gotoh observe that, “The actual targets of TPM are fixed more concretely in terms
of PQCDSM.” (Tajiri and Gotoh 1992 p. 72) Fairchild Semiconductor-Penang Malaysia utilizes
TPM as an umbrella program to drivestrategic PQCDSM goals (20% OEE improvement on
critical production equipment, $14 mil cost savings over five years, for example). (Tan, Hoh
et al. 2003) Gardner provides an overview of TPM success at National Semiconductor that is
typical of the benefits gained by many companies. “Hundreds of thousands of dollars are
being saved each month in terms of reducing lost revenue or in terms of cost avoidance.
More efficient equipment and processes means fewer new pieces of equipment need to be
purchased to meet demand. Early detection of problems means less resources spent on
major breakdowns and scrap. Clean, safe factories are more enjoyable towork in and
impress external auditors and customers. Total workforce engagement using TPM methods
is a very valuable way to reduce loss and improve profit.”(Gardner 2000 p. 4) Japanese firms
that won the JIPM PM prize between 1984 and 1986 demonstrated similar improvements.
(Patterson and Fredendall 1995)

 Equipment failures reduced from 1,000 per month to 20 per month.

 Quality defects reduced from 1.0% to 0.1%.
 Warranty claims reduced by 25%.
 Maintenance costs reduced by 30%.
 WIP decreased by 50%.
 Productivity improved by 50%.

Hartmann also finds tangible results for TPM initiatives in the Non-Japaneseplants.
(Hartmann 1992)

 Maintenance service calls reduced by 29%.

 Plant output increased by 40%.
 Speed of manufacturing (cycle time) increased by 10%.
 Defects reduced by 90%.Productivity increased by 50%.
 Maintenance costs reduced by 30%.
 Return on Investment improved by 262% to 500%.

Role of Technology in Operations Strategy:

Robotic Systems for Smart Manufacturing Program
DESCRIPTION

Due to their inherent flexibility and reusability, robotic systems are an essential tool in
strengthening U. S. manufacturing competitiveness by enabling dramatically greater
responsiveness and innovation. To attain these gains, robotic systems need to be highly-
capable, perceptive, dexterous, and mobile systems that can operate safely in collaboration
with humans, are easily tasked, and can be quickly integrated into the rest of the enterprise.
The Robotic Systems for Smart Manufacturing program will provide the measurement
science needed to enable all manufacturers, including small and medium ones, to
characterize and understand the performance of robotics systems within their enterprises.
Measurement science establishes a common language for expressing performance
requirements and provides means of verifying that systems meet those requirements.
Concrete performance targets also direct innovations towards addressing existing capability
gaps in robotic systems. NIST will deliver performance metrics, information models, test
methods and protocols to assess and assure the key attributes of robotic systems necessary
to enable this new dynamic production vision.

What is the new technical idea?

The fundamental idea is to focus on the measurement science needed to ensure that
robotic systems can be confidently applied to smart manufacturing assembly-centric
operations. Four principal facets of robotic capabilities will be investigated, while taking a
holistic approach in having a unified set of testbeds and assembly-centric scenarios
developed jointly with industry. These four capability-oriented research projects will be
strengthened by a complementary venture focusing on reducing the technical barriers small
and medium enterprises encounter today installing and using robots.

First, the overall robotic system performance must be assessed and assured. This entails
being able to characterize the performance of the foundational constituent capabilities of
the robotic system – perception, mobility, dexterity, and safety – and being able to compose
these into an overall system performance model that provides manufacturers with
currently-missing data to reduce the risk of adopting this key disruptive technology.
Robots must function as trusted co-workers, alongside humans, as well as being able to
collaborate with other robots to accomplish tasks. This aspect is lacking test methods,
protocols, and information models to assess and assure the collaborative performance
whilst achieving assembly performance objectives.

Wider use of robotics in manufacturing, especially within assembly, is hindered by their lack
of agility, their lengthy changeover times for new tasks and new products, and their limited
reusability. This program will provide manufacturers with an integrated agility assessment
framework so that they can evaluate how well a robotic system will be able to function
within their application environment.

The fourth aspect focuses on integration and interoperation and will address the obstacles
to easily integrating robotic assembly systems within manufacturing facilities. Models of the
underlying information required to automate the composition and integration of complex
robotic assembly systems, along with a suite of tools to foster interoperability will address
the existing incompatibility between robots and the next generation of perception, mobility,
and manipulation technologies needed to achieve automated assembly.

Complementing the above efforts is one that tackles the technically challenging procedures
that hinder adoption of robotic systems by small and medium enterprises. Specifically, the
calibrations of robot arms, sensors, and end-of-arm tooling are essential procedures when
installing new systems and must be executed periodically thereafter to maintain correct
performance. A tool suite that automates the creation of the complex models and
parameters necessary to achieve correct robotic system performance will enable easier
installation and greater robustness during the life of the robotic system.

What is ERP?
Enterprise Resource Planning (ERP) is software that attempts to integrate all departments
and functions across a company onto a single computer system that can serve all those
departments’ particular needs. ERP allows a company to automate and integrate the majority
of its business processes, including product planning, purchasing, production control,
inventory control, interaction with suppliers and customer, delivery of customer service and
keeping track of orders, to share common data and practices across the entire enterprise, and
to produce and access information in a real-time environment. ERP enables decision-makers
to have an enterprise-wide view of the information they need in a timely, reliable and
consistent fashion. ERP applications market grew to $25.4 billion in 2005, and will reach $29
billion in 2006. Over the next five years, the market will grow at an average of 10%.
Advantages of ERP
With ERP to automate processes, the benefits are as follows:

 Increase inventory turns

 Increase inventory accuracy rate
 Reduce inventory costs
 Improve customer service
 Reduce setup times
 Reduce paper work.
  Provide a unified customer database usable by all applications
 Provide greater and effective control on account.
 Faster response and follow ups to customers
 Improves supply demand linkage with remote locations and branches in different
locations
 Higher quality, less re-work
 Timely revenue collection, improved cash flow

Risks of ERP
There was 70% percent of all ERP projects fail to be fully implemented, even after three years.
Few companies are making full use of their ERP systems, despite the high cost of the software
and the length of time an implementation can take. Once installed, more than 50% of
companies said it was hard to make changes to ERP software in order to meet any changes in
business processes or requirements. More than 50% of the companies did not measure their
return on investment from business applications. The failure rates for ERP projects are
relatively high and could lead to the bankruptcy of the corporation.
Challenges of ERP Implementation
 Customization Related Challenges
 Redesigning Business Processes
 Cost of upgrades/updates
 Training
 Little flexibility in adapting to business processes
 High integration costs
 High maintenance costs
 Lengthy or incomplete integrations

Critical Success Factors of Implementing ERP

Critical factors to ERP implementation success:

 ERP teamwork and composition;

 Change management program and culture;
 Top management support;
 Business plan and vision; '
 Business process re-engineering and minimum customization;
 Effective communication;
 Project management;
 Software development, testing, and trouble shooting;
 Monitoring and evaluation of performance;
 Project champion; and
 Appropriate business and information technology legacy systems.

WHY IS ERP?
Key Motivating Factors
When asked to identify the motivating factors behind the ERP decision, the key decision
makers and MIS directors at all three companies mentioned similar factors[9]:

 Standardize supply chain practices across multiple sites.

 Simplify the software environment by replacing multiple, highly customized legacy
systems with a single “fleet” solution.
 Support corporate-level visibility and control of key supply chain processes, such as
procurement and production scheduling.

Tangible and intangible Benefits

The analysis must consider not only the obvious cost/benefit analysis, but also the non-
financial factors. Non-financial benefits include information visibility and flexibility. A more
complete listing of tangible and intangible benefits is provided in Table 1 [10].

Table 1: Tangible and intangible benefits.

ERP and Decision Making:

Decision making is the process of reaching a decision by searching, identifying, analysing and
assimilating data via communication and drawing inferences. This process requires
supporting information and systems. Information used for decision making have to possess
qualities such as accuracy & precision, timeliness & currency, relevance, conciseness,
completeness, good presentation and cost-effectiveness. Systems supporting decision
making process have to provide benefits such as reduction of communication barriers,
uncertainty and noise and regulating decision process. (Soliman and Youssef, 2003).

As an integrated system with perceived benefits of increasing efficiency and effectiveness in

all business processes, ERP is a logical candidate for permeating managerial processes such
as planning and decision making at tactical and strategic levels by providing required data
and supporting system for making quality and timely decisions (Cook and Peterson, 1998;
Davenport, 2000a; Holsapple and Sena, 2005). Also, the name ERP suggests ‘planning’ as an
ERP attribute indicating that ERP systems should help management in their planning and
decision making activities (Shang and Seddon, 2000; Spathis and Constantinides, 2003).
However, despite its potentials, the perceived role of ERP in decision making process has
not been investigated rigorously and the vast majority of literature both in the industry and
academia spheres has focused on operational issues such as initiation, adaptation and
support (Duff and Jain, 1998; Shang and Seddon, 2000; Hayes et al., 2001; Spathis and
Constantinides, 2003).

Increasing volume of research on implementation issues and less focus on crucial

managerial concepts such as decision making, return on investment and strategic benefits
could be associated to the substantial operational challenges that organisations face in ERP
implementation and support activities. Davenport (1998b) and Jacobs and Bendoly (2003)
argue that operational complexity, and the tedious job to get the system to work, has
contributed to less focus on such crucial issues such as improved decision making at tactical
and strategic level, return on investment and gaining competitive advantage, although such
issues represent potential long-term rationales for ERP acquisition.

Decision support is not explicitly recognised as a major reason for implementing ERP
systems and main objectives behind such a big investment remain highly operational issues
such as elimination of conflicting information, reduction in data redundancy,
standardisation of business processes across business units and efficiency in managing
transactions, however operational challenges become less important as companies become
more mature in their adaptation process and vendors gain more experience and awareness
about design and implementation of ERP systems. As a result, companies who initially
implemented ERP to overcome operational and transactional problems tend to
subsequently leverage their expectations to more strategic benefits such as decision
making. Hawking et al. (2004) argue that companies who are becoming mature in their ERP
implementation by achieving operational objectives, start exploring the possibility of
leveraging their investment on ERP towards more strategic benefits such as supporting
decision making process and information analysis activities. It is only at this stage that the
anticipated benefits from the investment in ERP will eventually be realised (Cook and
Peterson, 1998; Davenport, 2000a; Holsapple and Sena, 2005).

In addition to literature indicating the importance and need for research in this area,
organisations who are looking for ways to leverage their investment on ERP to more
strategic benefits and vendors who are facing saturated markets and are looking for ways to
add extra features and functionality to their products to keep or extend their market share
are driving forces behind the need for research on ERP utilisation beyond its transactional
and operational capabilities. However, this area of research remains highly under-
researched especially within the Australian context considering the importance of the topic
and its impact on both enterprise systems users and vendors. From our literature review,
there is clearly a need for research that provides insight on tactical and strategic decision
support features and functionality of ERP systems from different perspectives such as user
expectations, exhibition of decision support features in ERP systems and actual realisation
of such benefits in organisations.