Ashok Kumar

Operations Management

Conceptual Contemporary Experiential Learning

Discover the Value

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Todays class you will learn..

Role of Operations Strategy Developing an Operations Strategy Linking it to Practice
Competitive priorities of Operations function

Strategic Role of Technology

Home Assignment
Internet research and Case let
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Inputs to a Business strategy

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Business /Functional Strategy

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Importance of Operations Strategy

Essential differences between operational efficiency and strategy:
Operational efficiency is performing tasks well, even better than competitors Strategy is a plan for competing in the marketplace

Operations strategy ensures performed are the right tasks

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all

tasks

Operations Strategy Designing the Operations Function

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OMs Contribution to Strategy

Operations Decisions Examples Specific Strategy Used Competitive Advantage

Product
Quality Process Location Layout Human resource Supply-chain Inventory Scheduling Maintenance
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FLEXIBILITY Sonys constant innovation of new products....Design HPs ability to follow the printer marketVolume Southwest Airlines No-frills service....LOW COST Pizza Huts five-minute guarantee at lunchtime......Speed Federal Expresss absolutely, positively on time...Dependability Motorolas automotive products ignition systems......Conformance Motorolas pagers...Performance IBMs after-sale service on mainframe computers....AFTER-SALE SERVICE Fidelity Securitys broad line of mutual funds.BROAD PRODUCT LINE
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DELIVERY

Differentiation (Better)

QUALITY
Cost leadership (Cheaper)

Response (Faster)

Figure 2.4
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Process Design
High Process-focused JOB SHOPS (Print shop, emergency room, machine shop, fine dining Mass Customization Customization at high Volume (Dell Computers PC) Repetitive (modular) focus ASSEMBLY LINE (Cars, appliances, TVs, fast-food restaurants)

Variety of Products

Moderate

Product focused CONTINUOUS (steel, beer, paper, bread, institutional kitchen)

Low Low
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Moderate Volume
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High
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Operations Strategies for Two Drug Companies

Brand Name Drugs, Inc.
Competitive Advantage Product Differentiation

Generic Drug Corp.

Low Cost Low R&D; focus on development of generic drugs

Product Heavy R&D; labs; focus Selection and on development in a Design broad range of drug categories Quality

Major priority, exceed Meets regulatory regulatory requirements requirements on a country by country basis
Table 2.2
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Operations Strategies for Two Drug Companies

Brand Name Drugs, Inc. Competitive Advantage Process Product Differentiation Product and modular process; long production runs in specialized facilities; build capacity ahead of demand Still located in the city where it was founded Generic Drug Corp. Low Cost Process focused; general processes; job shop approach, short production runs; focus on high utilization Recently moved to lowtax, low-labor-cost environment
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Location

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Operations Strategies for Two Drug Companies

Brand Name Drugs, Inc.
Competitive Advantage Scheduling Product Differentiation Centralized production planning

Generic Drug Corp.

Low Cost Many short-run products complicate scheduling Layout supports process-focused job shop practices

Layout

Layout supports automated productfocused production

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Table 2.2
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Operations Strategies for Two Drug Companies

Brand Name Drugs, Inc.
Competitive Advantage Human Resources Product Differentiation Hire the best; nationwide searches

Generic Drug Corp.

Low Cost Very experienced top executives; other personnel paid below industry average Tends to purchase competitively to find bargains

Supply Chain

Long-term supplier relationships

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Table 2.2
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Operations Strategies for Two Drug Companies

Brand Name Drugs, Inc. Competitive Advantage Inventory Product Differentiation High finished goods inventory to ensure all demands are met Generic Drug Corp. Low Cost Process focus drives up work-in-process inventory; finished goods inventory tends to be low Highly trained staff to meet changing demand

Maintenance

Highly trained staff; extensive parts inventory

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Table 2.2
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Strategic Options to Gain a Competitive Advantage

28% - Operations Management 18% - Marketing/distribution 17% - Momentum/name recognition 16% - Quality/service 14% - Good management 4% - Financial resources 3% - Other
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Elements of Operations Management Strategy

Low-cost product Product-line breadth Technical superiority Product characteristics/differentiation Continuing product innovation Low-price/high-value offerings Efficient, flexible operations adaptable to consumers Engineering research development Location Scheduling

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Strategy Development and Implementation

Identify critical success factors Build and staff the organization Integrate OM with other activities
The operations managers job is to implement an OM strategy, provide competitive advantage, and increase productivity
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Product Life Cycle

Introduction Company Strategy/Issues
Best period to increase market share
R&D engineering is critical

Growth
Practical to change price or quality image
Strengthen niche

Maturity
Poor time to change image, price, or quality
Competitive costs become critical Defend market position

Decline
Cost control critical

CD-ROM
Internet Color printers Drive-through restaurants

Fax machines

Sales

Flat-screen monitors

DVD

3 1/2 Floppy disks

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Figure 2.5

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Product Life Cycle

Introduction
Product design and development critical

Growth
Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus

Maturity
Less rapid product changes more minor changes

Decline
Little product differentiation Cost minimization

Forecasting critical Standardization

OM Strategy/Issues

Frequent product and process design changes Short production runs High production costs

Optimum capacity
Increasing stability of process Long production runs Product improvement and cost cutting

Overcapacity in the industry

Prune line to eliminate items not returning good margin

Limited models
Attention to quality

Enhance distribution

Reduce capacity

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Figure 2.5

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Competitive Priorities- The Edge

Four Key Operations Questions: Will you compete on Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs?
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Competing on Cost
Offering product at a low price relative to competition

Typically high volume products

Often limit product range & offer little customization May invest in automation to reduce unit costs Can use lower skill labor Probably uses product focused layouts

Process chain lean and less waste

Low cost does not mean low quality
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Competing on Quality
Quality is often subjective Quality is defined differently depending on who is defining it Two major quality dimensions include
High performance design:
Superior features, high durability, & excellent customer service

Product & service consistency:

Meets design specifications Close tolerances Error free delivery

Quality needs to address

Product design quality product/service meets requirements Process quality error free products

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Competing on Time
Time/speed one of most important competition priorities

First that can deliver often wins the race

Time related issues involve
Rapid delivery:
Focused on shorter time between order placement and delivery

On-time delivery:
Deliver product exactly when needed every time

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Competing on Flexibility
Company environment changes rapidly Company must accommodate change by being flexible
Product flexibility:
Easily switch production from one item to another Easily customize product/service to meet specific requirements of a customer

Volume flexibility:
Ability to ramp production up and down to match market demands

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The Need for Trade-offs

Decisions must emphasize priorities that support business strategy Decisions often required trade offs Decisions must focus on order qualifiers and order winners
Which priorities are Order Qualifiers? Must have excellent quality since everyone expects it Which priorities are Order Winners? Dell competes on all four priorities Southwest Airlines competes on cost McDonalds competes on consistency FedEx competes on speed Custom tailors compete on flexibility

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Translating to Production Requirements

Specific Operation requirements include two general categories Structure decisions related to the production process, such as characteristics of facilities used, selection of appropriate technology, and the flow of goods and services Infrastructure decisions related to planning and control systems of operations

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Translating to Production Requirements

Dell Computer example structure & infrastructure

They focus on customer service, cost, and speed ERP system developed to allow customers to order directly from Dell Product design and assembly line allow make to order strategy lowers costs, increases turns Suppliers ship components to a warehouse within 15 minutes of the assembly plant - VMI Dell set up a shipping arrangement with UPS

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Strategic Role of Technology

Technology should support competitive priorities Three Applications: product technology, process technology, and information technology

Products - Teflon, CDs, fiber optic cable

Processes flexible automation, CAD Information Technology POS, EDI, ERP, B2B

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Technology for Competitive Advantage

Technology has positive and negative potentials Positive Improve processes Maintain up-to-date standards Obtain competitive advantage Negative Costly Risks such as overstating benefits

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Technology for Competitive Advantage

Technology should: Support competitive priorities Can require change to strategic plans Can require change to operations strategy Technology is an important strategic decision

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Wrap-Up: World-Class Practice

Put customers first Get new products/services to market faster Are high quality producers Have high labor productivity & low production costs Carry little excess inventory . . . more
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Wrap-Up: World-Class Practice

Think more globally in purchasing and selling Quickly adopt and develop new technologies Trim organizations to be lean and flexible Are less resistant to strategic alliances/joint ventures Consider relevant social issues when setting strategies

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