An Introduction to Operations Strategy

Upendra Kachru

OPERATIONS MANAGEMENT

What is Operations Strategy

Operations + Strategy

Upendra Kachru

OPERATIONS MANAGEMENT

What is Strategy?
Strategy is a plan or a path that shapes long-term capabilities. In businesses, the use of strategy is generally described as strategic management. Strategic management can be defined as follows: .it is a set of processes to manage and control an enterprise so that over the long-term through reconfiguring of scope, resources and competencies of the organization, an advantage over rivals is achieved that fulfils stakeholder expectations and meets the needs of the changing environment.
Upendra Kachru OPERATIONS MANAGEMENT

DIMENSIONS OF OPERATIONS STRATEGY

Value Delivery System

(Process Intent and Process Model)

Upendra Kachru

OPERATIONS MANAGEMENT

How is operations strategy different from management of operations?

Management of Operations
Short-term Timescale e.g. capacity decisions Operations strategy Long-term

Upendra Kachru

OPERATIONS MANAGEMENT

How is operations strategy different from management of operations?

Management of Operations
Micro Level of analysis Concerned with the macro operation (level of the firm) Operations strategy Macro

Upendra Kachru

OPERATIONS MANAGEMENT

How is operations strategy different from management of operations?

Management of Operations

Operations strategy
Aggregated

Detailed

Level of aggregation (Concerned with resources at an aggregated level)

Can we give tax services to the small business market in Panjim?

What is overall business advice capability compared with other capabilities?

Upendra Kachru

OPERATIONS MANAGEMENT

How is operations strategy different from management of operations ?

Management of Operations

Operations strategy
Philosophical

Concrete

Level of abstraction (Concerned with the conceptual)

How do we improve our purchasing procedures?

Should we develop strategic alliances with suppliers?

Upendra Kachru

OPERATIONS MANAGEMENT

Strategy and Operations is a Paradox

There are basic differences in the nature of strategic management and operations management. The fact that the qualities required for involving one in strategic change are different from those required for operational control, has to be recognized.
Strategic Management Ambiguous Complex Organization wide Fundamental Long-term Implications Operational Management Routinized

Operationally Specific

Short-term Implications

Upendra Kachru

OPERATIONS MANAGEMENT

Operations strategy is ..

the decisions which shape the long-term capabilities of the companys operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources

Upendra Kachru

OPERATIONS MANAGEMENT

There are four perspectives on operations strategy. The top-down perspective operations strategy should interpret higher-level strategy The bottom-up perspective operations strategy should learn from day-to-day experience

Upendra Kachru

OPERATIONS MANAGEMENT

Different Levels of Strategy

Regardless of the type of organization, there exist three highly differentiated strategic concerns.
The first addresses the organization as a whole, and concerns issues relating to corporate strategy: relating to the choice of markets i.e. scope and to ownership. The second relates to Competitive strategy. It tries to answer the question: how to build unassailable value propositions that create new customers for specific product groups or services. The third entails the development of functional capabilities that support the firm as a whole as well as the different markets in which the firm operates. This is called functional strategy and it makes decisions about issues relating to the different functions within the firm.

Upendra Kachru

OPERATIONS MANAGEMENT

Different Levels of Strategy

The three different levels forms a hierarchy of decision-making and defines the structure of strategic management.
Corporate or Grand Strategy Vision & Mission Philosophy and culture Corporate Advantage Competitive Strategy Business goals Competitive Advantage
Functional Strategies

Information Systems Finance

Research & Development Marketing

Operations Human Resources

Upendra Kachru

OPERATIONS MANAGEMENT

Functional Strategies
The process of evolving Functional Strategy boils down to the ability of the functional area to carry out a number of tasks effectively and efficiently:
Evolve goals that reflect the mission and vision and in keeping with the Corporate and Competitive Strategy of the firm; Set objectives that are achievable in light of the corporate strategy; changing external factors that include regulation, competition, technology, and customers; Set objectives that are achievable in light of the competitive strategy of the firm; Create an effective organizational structure and arrange the resources to successfully carry out the strategy, and Finally evaluate the performance so that necessary corrective measures can be taken to keep it on track to achieve the goals.

Upendra Kachru

OPERATIONS MANAGEMENT

Operations strategy Perspectives?

There are four perspectives on operations strategy. The four perspectives on operations strategy:
Top-down
Operations strategy should interpret higher level strategy

Operations Resources

Market Requirements

Operations strategy should learn from day-today experiences

Bottom-up

Upendra Kachru

OPERATIONS MANAGEMENT

Advantage
Organizations achieve advantage (corporate and competitive) by providing their customers with what they want, or need, better or more effectively than competitors and in ways the competitors find difficult to imitate.

Upendra Kachru

OPERATIONS MANAGEMENT

Relating it to Corporate Strategies

Upendra Kachru

OPERATIONS MANAGEMENT

Relating it to Corporate Strategies

There are two types of inputs that go into the transformation process. The first of these is classified as:
Transforming Resources It is those resources that are used to perform the transformation process. They are generally in the form of labor or capital.

Transforming resources reflect the ownership and scope aspect of Operations Management. Operations Strategy must provide for corporate advantage through these.

Upendra Kachru

OPERATIONS MANAGEMENT

Operations Strategy
Decomposing the ratio profit/total assets to derive the four strategic decision areas of operations strategy
Return on Assets = Profit Total assets = Output Total assets Profit Output

Profit Output

Revenue Output Average revenue

Cost Output Average cost

Output Total assets

Output Capacity Utilisation

Capacity Fixed assets

Fixed assets Total assets Working capital Competitive Strategy

Productivity of fixed assets

Corporate Strategy Operations strategy decision areas

Capacity & Supply Network

Process technology

Flow and Layout

Improvement & Planning

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OPERATIONS MANAGEMENT

Transforming Resources - Value Delivery Capability

Structural Issues primarily influence the physical characteristic, configuration and arrangement of operational resources. Infrastructural issues influence the activities that take place within the operations structure.

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OPERATIONS MANAGEMENT

Structural Issues

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OPERATIONS MANAGEMENT

Infrastructural Issues

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OPERATIONS MANAGEMENT

First/Business class
Services First/Business-class cabin, airport lounges, pick-up service

Economy class
Economy cabin

Customers

Wealthy people, business people, VIPs Wide range, may need to be customised Relatively high Relatively low volume

Travellers (friends and family), vacation takers, cost-sensitive business travel Standardised cabin Relatively low Relatively high volume Low to medium

Service range Rate of service innovation Volume of activity Profit margins

Medium to high

Main competitive factors Customisation, extra service, comfort features, convenience

Price, acceptable service

Performance objectives Quality (specification and conformance), Flexibility, Speed

Cost, Quality (conformance)

Different product groups require different performance objectives

Upendra Kachru OPERATIONS MANAGEMENT

Supply networks are the interconnections of relationships between operations

Flow of Products/Services Flow of Information Upstream
Second-tier suppliers First-tier suppliers

Focal level

Downstream
First-tier customers Second-tier customers

Company A

Company B

Company C

x x x
Supply side of the network

Demand side of the network

Upendra Kachru

OPERATIONS MANAGEMENT

Operations management and strategy requires analysis at three levels

Flow between operations

Analysis at the level of the capacity creation or supply network

Flow between processes

Corporate Decisions

Analysis at the level of the operation Analysis at the level of the process

Flow between resources

Operational Decisions

Upendra Kachru

OPERATIONS MANAGEMENT

Some factors influencing the overall level of capacity

Availability of capital Cost structure of capacity increment OPERATIONS RESOURCES Economies of scale Flexibility of capacity provisions Consequences of over/undersupply Overall level of capacity MARKET REQUIREMENTS Uncertainty of future demand Forecast level of demand Changes in future demand

Upendra Kachru

OPERATIONS MANAGEMENT

The three dimensions of process technology are often closely linked

Few, large units of process technology Process (technology plus humans) has low acuity and judgement

SCALE High Low

Many, small units of process technology Process (technology plus humans) has high acuity and judgement

AUTOMATION High Low

COUPLING
Technology is integrated

High

Low

Technology is separated

Flexibility performance Cost performance

Upendra Kachru

OPERATIONS MANAGEMENT

Operations strategy decision areas are partly structural and partly infrastructural
Capacity Supply network
Process technology Development and organisation

Structural issues

Infrastructural issues

Upendra Kachru

OPERATIONS MANAGEMENT

Relating it to Competitive Strategies

Upendra Kachru

OPERATIONS MANAGEMENT

Relating it to Competitive Strategies

Operations strategy looks at the competitive strategy to determine the transformation for this resource. Transformed Resources It is those resources that are transformed in some way by the operation to produce the goods or services that are its outputs

Upendra Kachru

OPERATIONS MANAGEMENT

What is operations strategy about?

Operations resources Market requirements

What you HAVE

in terms of operations capabilities

What you DO
to maintain your capabilities and satisfy markets

What you WANT

from your operations to help you compete

What you NEED

to compete in the market

Strategic reconciliation
Upendra Kachru OPERATIONS MANAGEMENT

Operations management and strategy requires analysis at three levels

Flow between operations

Analysis at the level of the supply network

Flow between processes

Analysis at the level of the operation Analysis at the level of the process

Flow between resources

Upendra Kachru

OPERATIONS MANAGEMENT

People & Organization

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OPERATIONS MANAGEMENT

Linking to Competitive Strategy

This provides the other two perspectives, which are as follows:
The market requirements perspective operations strategy should satisfy the organization's markets The operations resource perspectives operations strategy should build operations capabilities

Upendra Kachru

OPERATIONS MANAGEMENT

Competitive Strategy in Operations reflect two perspectives market requirements, and operations resources
Corporate strategy

Business strategy Top-down

Capacity Supply networks Operations Process technology resources Development and organisation Quality Speed Market Dependability requirements Flexibility Cost

Bottom-up Emergent sense of what the strategy should be Operational experience

Upendra Kachru

OPERATIONS MANAGEMENT

Operations strategy reconciles the requirements of the market with the capabilities of operations resources
Strategic reconciliation

Operations resources

OPERATIONS STRATEGY

Market requirements

Upendra Kachru

OPERATIONS MANAGEMENT

Market requirements and Operations Resources

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OPERATIONS MANAGEMENT

Operations Strategy Relating to Competitive Strategy

Operations strategy is the strategic reconciliation of market requirements with operations resources Short & long Term costs Order Loser value Delivered Performance

The value seesaw

Value = Performance / Cost Where: Performance = f (functionality, quality, speed, timeliness, flexibility)

Upendra Kachru

OPERATIONS MANAGEMENT

DIRECT getting the fit right

Fit means that the operations resources and processes are aligned with the requirements of its markets.

Market requirements

Operations resource capability

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OPERATIONS MANAGEMENT

The efficient frontier view

Variety

The efficient frontier

C D Cost efficiency

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OPERATIONS MANAGEMENT

DELIVERY SYSTEM DESIGN

Variety The new efficient frontier

B1
B

C D Cost efficiency

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OPERATIONS MANAGEMENT

GREAT WEAPONS OF THE STRATEGIST

1. Increase the contributions of the entire workforce 2. Satisfy customers

3. Use advanced technology

4. Use advanced methods 5. Align Process Intent with strategy

6. Design Process Models that optimally achieve Process Intent

7. Provide variety w/o incurring added costs usually associated with it

8. Produce variety with economies of scale

9.

Fast response
OPERATIONS MANAGEMENT

Upendra Kachru

Trade-offs
No such thing as a free lunch. You cant have an aircraft which flies at the speed of sound, carries 400 passengers and lands on an aircraft carrier. Operations are just the same. (Skinner)

Trade-offs in operations are the way we are willing to sacrifice one performance objective to achieve excellence in another.

Upendra Kachru

OPERATIONS MANAGEMENT

Some factors influencing Process Decisions

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OPERATIONS MANAGEMENT

Operations strategy is the strategic reconciliation of market requirements with operations resources
Tangible and intangible resources Operations strategy decision areas Customer needs

Operations capabilities

Performance objectives

Market positioning

Operations processes

Competitors actions

Understanding resources and processes

Strategic decisions Capacity Supply networks Process technology Development and organisation

Required performance Quality Speed Dependability Flexibility Cost

Understanding markets

Upendra Kachru

OPERATIONS MANAGEMENT

The operations strategy matrix

Upendra Kachru

OPERATIONS MANAGEMENT

The operations strategy matrix

Resource usage

Performance objectives

Quality Speed Dependability Flexibility Cost Capacity Supply network Process technology Development and organisation Operations strategy

Decision areas

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OPERATIONS MANAGEMENT

Market competitiveness

7-Eleven Japan
Largest retailer in Japan Sells 15.X as much per store as nearest rival History of cautious expansion and technical and service innovation Field Counsellors spread operations knowledge (also distance training) Expansion by territory to reduce distribution costs Early use of TIS (Total Information System) TIS controls stock replenishment by twice a day delivery (sales analysed twice a day) New systems not Internet-based New service includes: Bank terminals

Downloading games
Downloading music to MD Internet ordering and collection

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OPERATIONS MANAGEMENT

RESOURCE DEPLOYMENT
QUALITY of products and services Distribution centre grouping by temperature Distribution centres and inventory management systems give fast stock replenishment TIS allows trends to be forecast and supply adjustments made COST in terms of minimising operating cost capital cost working capital Area dominance reduces distribution and advertising costs Common distribution centers give small frequent deliveries from fewer sources Information sharing and parenting system spreads service ideas

FLEXIBILITY of response to sales and customer trends

TIS gives comprehensive and sophisticated analysis of sales & supply patterns daily
Field counsellors with sales data help stores to minimise waste and increase sales

Location of stores Size of stores

Number and type of

distribution centres Order and stock replenishment

The Total
Information System (TIS)

Franchisee New
relationships product/service development Approach to operations improvement

7-11 JAPAN
Pivotal Critical Secondary
CAPACITY

SUPPLY NETWORKS

PROCESS TECHNOLOGY

DEVELOPMENT AND ORGANISATION

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OPERATIONS MANAGEMENT

Market Competitiveness

Speed and dependability combined to indicate AVAILABILITY

Polar diagram representing Process Decisions

Quality Batch Production

Flexibility

Timeliness

Mass Production

Cost

Speed

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OPERATIONS MANAGEMENT

Polar diagram for Newspaper Collection (NC) and General Recycling (GR) services
Newspaper collection service Cost General recycling service

Speed

Dependability

Quality

Flexibility

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OPERATIONS MANAGEMENT

Click

to

edit

company

slogan

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OPERATIONS MANAGEMENT

Operations strategy is
the total pattern of decisions that shape the long-term capabilities of any type of operation ... and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources so as to achieve a sustainable fit between the two

whilst managing the risks of misalignment.

Upendra Kachru

OPERATIONS MANAGEMENT

What is strategy?
Strategy is many things: plan, pattern, position, ploy and perspective. Strategy is ubiquitous. It can be found at the highest levels of corporate, governmental, military and organizational endeavor and in small, medium and large units. It is everywhere.

Strategy is an abstraction, a construct. It has no concrete form or substance. Strategy is the art of the general. In part, it is about the preparations made before battle, before the enemy is engaged. But it is also about avoiding battle and making combat unnecessary. Strategy is a general plan of attack, an approach to a problem, the first step in linking the means or resources at our disposal with the ends or results we hold in view. Strategy is direction and destination. At one and the same time strategy says, "We are headed there by this path." Strategy is a set of decisions made. What business are we in? What products and services will we offer? To whom? At what prices? On what terms? Against which competitors? On what basis will we compete?

Upendra Kachru

OPERATIONS MANAGEMENT

What is strategic management?

Strategic management is a set of processes to manage and control an enterprise so that over the long-term through reconfiguring of scope, resources and competencies of the organization, an advantage over rivals is achieved that fulfils stakeholder expectations and meets the needs of the changing environment.

Upendra Kachru

OPERATIONS MANAGEMENT

Market and Resource perspective

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OPERATIONS MANAGEMENT

WHAT CUSTOMERS EXPECT FROM A HIGHLY RESPONSIVE BUSINESS

The service or product is there when needed, e.g. delivery is convenient, on time, and exact in quantity.

Short time to develop new products or services, deliver customized or standard products and service, or change a design to better satisfy customers.
Short time to respond to inquiries, change order quantities, order mix, or delivery time. Short time to correct customer complaints, service failures, defects, or dissatisfaction, so that they never recur. Short time to provide support materials and services
Upendra Kachru OPERATIONS MANAGEMENT

The product-process matrix and the technology dimensions

Low volume High variety Loose Separated High acuity and judgement Many, small units High High volume Low variety

Market requirements
High Cost Low Off the diagonal High flexibility Redundant capability High costs

A
Automation

Coupling

Flexibility

Scale

Integrated Rigid

Low acuity and judgement

Few, large, units

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Low

Off the diagonal Low flexibility Insufficient capability High costs

OPERATIONS MANAGEMENT

Scale versus Scaleability

Few, large units of process technology

High

Scale/Scaleability

Low

Many, small units of process technology

Scale issues Higher capital costs Economies of scale Vulnerable to failure All or nothing change

Scaleability issues Customised, legacy systems Specific expertise required Idiosyncratic processes In-house development

Scale issues Lower capital costs Demand matching Failure redundancy Upgrading easier

Scaleability issues Reliable architecture Dispersed system skills Standard processes Outsourced?

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OPERATIONS MANAGEMENT

Automation versus Analytical content

Process (technology plus humans) has low acuity and judgement

High

Automation/Analytical content

Low

Process (technology plus humans) has high acuity and judgement

Automation issues

Analytical content issues Higher capital cost Parallel processing Complex connectivity

Automation issues Higher direct costs Human control and judgement Human creativity

Analytical content issues

Lower capital cost Simple sequential rules Often single point of connection

What degree of support is required? How flexible is the process? How dependable is the process?

Upendra Kachru

OPERATIONS MANAGEMENT

Coupling and Connectivity

Technology is integrated

High

Coupling/Connectivity

Low

Technology is separated

Coupling issues High capital costs Speed or rigidity? Better synchronisation System efficiency

Connectivity issues Platform independence Bandwidth available Reliable middleware Security concerns

Coupling issues Lower capital costs Fragmentation or flexibility? Control flexibility System robustness

Connectivity issues Customised, legacy systems Hard-wired Restricted access

Upendra Kachru

OPERATIONS MANAGEMENT

Process Decisions - Make or Buy

There are different categories of components, sub-assemblies and other inputs that go into an organizations products. These categorizes are as follows:
Proprietary items: Proprietary items are based on the design of the supplier and used in the end product without change in its basic form or characteristics, for e.g., headlights, and dashboard instruments. Standard components: These components are universally designed for general use. For e.g.,, standard or customized fasteners are used in most manufactured products. Specialty components: These components are specialized in nature like the tyres which though used in all vehicles are a speciality product supplied by manufacturers of rubber products. Commodity type items: These items are supplied either to standard specifications, or customized to the requirements of the user by the supplier. In the case of an automobile manufacturer, steel, would constitute such an item.

Upendra Kachru

OPERATIONS MANAGEMENT

Supply Chain Options

The components, sub-assemblies, etc. those that are designed for the product can either be manufactured or outsourced. These can be related to what the management considers as: Core, and Non-core activities. The designation is relative. Core and non-core activities can change depending on the perception of management.

Upendra Kachru

OPERATIONS MANAGEMENT

Supply Chain Expansion

To protect markets and the uniqueness of products Product components, and Infrastructure components

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Framework for Outsourcing

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OPERATIONS MANAGEMENT

Operations performance should be seen as a whole supply chain issue

Benefits of looking at the whole supply chain Puts the operation into its competitive context Helps identify the key players Shifts emphasis to the long term

Sensitises the operation to macro changes

Changes the nature of the supplierbuyer relationship

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OPERATIONS MANAGEMENT

Types of supply relationship

Close few supplier s Long-term virtual operation

Transaction al many suppliers Type of inter-firm

Partnership supply relationships

Vertical integration

contact

Virtual spot trading

Resource scope

Traditional market supply

The character of internal operations activity Do nothing Do everything

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OPERATIONS MANAGEMENT

DRIVING CHANGE

Delivery Systems Redesign

New Process Intent New Process Model New Learning and Improvement System New Value-Adding Technology

Continuous Improvement
Reduction of Valueless time Valueless activity Valueless variance

Often non-linear

Usually linear
OPERATIONS MANAGEMENT

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The sectoral scope of operations strategy Products or services?

Manufacturing or non-manufacturing?
For profit or not-for-profit?

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OPERATIONS MANAGEMENT

Broad strategic objectives for a parcel delivery operation applied to stakeholder groups
Society Increase employment Enhance community well-being Produce sustainable products Ensure clean environment

Suppliers Continue business Develop supplier capability Provide transparent information

Customers Appropriate product or service specification Consistent quality Fast delivery Dependable delivery Acceptable price

Shareholders Economic value from investment Ethical value from investment

Employees Continuous employment Fair pay Good working conditions Personal development

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OPERATIONS MANAGEMENT