pom 2 - os

7/31/2019 POM 2 - OS

1/70

Upendra Kachru OPERATIONS MANAGEMENT

An Introduction toOperations Strategy

7/31/2019 POM 2 - OS

2/70


What is Operations Strategy

Operations +

Strategy

7/31/2019 POM 2 - OS

3/70


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.

7/31/2019 POM 2 - OS

4/70


DIMENSIONS OF OPERATIONS STRATEGY

Value Delivery System(Process Intent and Process Model)

7/31/2019 POM 2 - OS

5/70


How is operations strategy different frommanagement of operations?

Timescalee.g. capacity

decisions

Short-term

Management of Operations

Long-term

Operations strategy

7/31/2019 POM 2 - OS

6/70



Level of analysis

Concerned with themacro operation(level of the firm)

Micro


Macro

Operations strategy

7/31/2019 POM 2 - OS

7/70



Level of

aggregation(Concerned withresources at anaggregated level)

Detailed


Aggregated

Operations strategy

Can we give taxservices to the smallbusiness market in

Panjim?

What is overallbusiness advice

capability compared

with other capabilities?

7/31/2019 POM 2 - OS

8/70


How is operations strategy different frommanagement of operations ?

Level of abstraction(Concerned withthe conceptual)

Concrete


Philosophical

Operations strategy

How do we improveour purchasingprocedures?

Should we developstrategic alliances with

suppliers?

7/31/2019 POM 2 - OS

9/70


Strategy and Operations is a Paradox

Strategic Management Operational Management

Ambiguous

Complex

Routinized

Organization wide

Fundamental

Operationally Specific

Long-term Implications Short-term Implications

There are basic differences in the nature of strategic management andoperations management. The fact that the qualities required for involving one instrategic change are different from those required for operational control, has tobe recognized.

7/31/2019 POM 2 - OS

10/70


Operations strategy is ..

the decisions which shape the long-term

capabilities ofthe companys operations and

their contribution to overall strategy throughthe on-going reconciliation of market

requirements and operations resources

7/31/2019 POM 2 - OS

11/70


There are four perspectives on operations strategy.

The top-down perspectiveoperations strategy should interpret

higher-level strategy

The bottom-up perspectiveoperations strategy should learn from

day-to-day experience

7/31/2019 POM 2 - OS

12/70


Different Levels of Strategy

Regardless of the type of organization, there exist three highlydifferentiated 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 thequestion: 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 calledfunctional strategy and it makes decisions about

issues relating to the different functions within the firm.

7/31/2019 POM 2 - OS

13/70


Different Levels of Strategy

The three different levels forms a hierarchy of decision-making and

defines the structure of strategic management.

Research &

Development

Information

Systems

Marketing

Operations

Human ResourcesFinance

Competitive Strategy

Business goals

CompetitiveAdvantage

Corporate or Grand Strategy

Vision & Mission

Philosophy and culture

Corporate Advantage

Functional Strategies

7/31/2019 POM 2 - OS

14/70


Functional StrategiesThe process of evolving Functional Strategy boils down to the ability

of the functional area to carry out a number of tasks effectively andefficiently:

Evolve goals that reflect the mission and vision and in keeping with theCorporate and Competitive Strategy of the firm;

Set objectives that are achievable in light of the corporate strategy; changingexternal 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 tosuccessfully carry out the strategy, and

Finally evaluate the performance so that necessary corrective measures can betaken to keep it on track to achieve the goals.

O ti t t P ti ?

7/31/2019 POM 2 - OS

15/70


There are four perspectives on operations strategy. Thefour perspectives on operations strategy:

Top-down

Operationsstrategy shouldinterpret higherlevel strategy

OperationsResources

Operationsstrategy should

learn from day-to-day experiences

Bottom-up

MarketRequirements

Operations strategy Perspectives?

7/31/2019 POM 2 - OS

16/70


Advantage

Organizations achieve advantage(corporate andcompetitive) by providing

their customers with what they want, or

need, better or more effectively thancompetitors and in ways the competitors

find difficult to imitate.

7/31/2019 POM 2 - OS

17/70


Relating it to Corporate Strategies

7/31/2019 POM 2 - OS

18/70


Relating it to Corporate Strategies

There are two types of inputs that go into the transformationprocess. The first of these is classified as:

Transforming ResourcesIt is those resources that are used toperform the transformation process. They are generally in theform of labor or capital.

Transforming resources reflect the ownership andscope aspect of Operations Management. OperationsStrategy must provide for corporate advantage

through these.

Operations Strategy

7/31/2019 POM 2 - OS

19/70


Profit

Total assets

Output

Total assets

Profit

Output

=

Operations Strategy

Output

Total assets

Output

Capacity

Fixed assets

Total assets

Capacity

Fixed assets

Utilisation Working capitalProductivity of fixedassets

=

Profit

OutputRevenue

Output

Cost

Output

Averagerevenue

Averagecost

=

Operations strategydecision areas

Capacity & SupplyNetwork

Flow andLayout

Processtechnology

Improvement &Planning

Corporate

Strategy

Decomposing the ratio profit/total assets to derive the four strategic decisionareas of operations strategy

CompetitiveStrategy

Return on Assets =

7/31/2019 POM 2 - OS

20/70


Transforming Resources - Value

Delivery Capability

Structural Issues primarily influence thephysical characteristic, configuration andarrangement of operational resources.

Infrastructural issues influence theactivities that take place within theoperations structure.

7/31/2019 POM 2 - OS

21/70


Structural Issues

7/31/2019 POM 2 - OS

22/70


Infrastructural Issues

7/31/2019 POM 2 - OS

23/70


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

Economy cabin

Wealthy people, businesspeople, VIPs Travellers (friends and family), vacationtakers, cost-sensitive business travel

Wide range, may need to be

customisedStandardised cabin

Relatively high Relatively low

Relatively low volume Relatively high volume

Medium to high Low to medium

First/Business class Economy class

Customisation, extra service, comfortfeatures, convenience

Quality (specification and

conformance), Flexibility, Speed

Price, acceptable service

Cost, Quality (conformance)

Services

Customers

Service range

Rate of serviceinnovation

Volume of activity

Profit margins

Main competitive factors

Performance objectives

Different product groups require different performance objectives

S

7/31/2019 POM 2 - OS

24/70


Second-tiersuppliers

First-tiersuppliers

Company A

Company B

Company C

x

Second-tiercustomers

First-tiercustomers

x

xx

x

Focal

level

Upstream Downstream

Supply side of the network Demand side of the network

Flow of Products/ServicesFlow of Information

Supply networks are the interconnections of relationshipsbetween operations

7/31/2019 POM 2 - OS

25/70


Operations management and strategyrequires analysis at three levels

Flow between operationsAnalysis at thelevel of thecapacity creation orsupply network

Analysis at thelevel of theoperation

Flow between processes

Analysis at the

level of theprocessFlow between resources

CorporateDecisions

OperationalDecisions

S f t i fl i th ll

7/31/2019 POM 2 - OS

26/70


Some factors influencing the overalllevel of capacity

Forecastlevel ofdemand

Consequencesof over/under-

supply

Availability ofcapital

Flexibility ofcapacity

provisions

Changes infuture

demand

Uncertaintyof futuredemand

Cost structure ofcapacity

increment

Economiesof scale

OPERATIONS

RESOURCES

MARKET

REQUIREMENTS

Overall level of

capacity

Th th di i f t h l

7/31/2019 POM 2 - OS

27/70


The three dimensions of process technology areoften closely linked

Few, large units ofprocess

technology

Many, small unitsof processtechnology

Process (technology

plus humans) haslow acuity and

judgement

Process(technology plus

humans) has highacuity and

judgement

Technology isintegrated

Technology isseparated

High LowSCALE

High Low

AUTOMATION

High Low

COUPLING

Cost performance

Flexibility performance

O ti t t d i i tl

7/31/2019 POM 2 - OS

28/70


Operations strategy decision areas are partlystructural and partly infrastructural

CapacityDevelopment and

organisationSupply networkProcess

technology

Structural issues

Infrastructural issues

7/31/2019 POM 2 - OS

29/70


Relating it to Competitive Strategies

R l i i C i i S i

7/31/2019 POM 2 - OS

30/70


Operations strategy looks at the competitive strategy todetermine the transformation for this resource.

Transformed Resources It is those resources that aretransformed in some way by the operation to produce

the goods or services that are its outputs

Relating it to Competitive Strategies

What is operations strategy about?

7/31/2019 POM 2 - OS

31/70


What youHAVE

in terms ofoperationscapabilities

What youNEED

to compete inthe market

Operationsresources

Marketrequirements

What youWANT

from youroperations to

help youcompete

What youDO

to maintainyour

capabilitiesand satisfy

markets

Strategicreconciliation

What is operations strategy about?

7/31/2019 POM 2 - OS

32/70


Operations management and strategyrequires analysis at three levels

Flow between operationsAnalysis at thelevel of the supplynetwork

Analysis at thelevel of theoperation

Flow between processes

Analysis at the

level of theprocessFlow between resources

P l & O i ti

7/31/2019 POM 2 - OS

33/70


People & Organization

Li ki t C titi St t

7/31/2019 POM 2 - OS

34/70


Linking to Competitive Strategy

This provides the other two perspectives, which areas follows:

The market requirements perspectiveoperations

strategy should satisfy the organization's markets

The operations resource perspectivesoperations

strategy should build operations capabilities

Competitive Strategy in Operations reflect two perspectives

7/31/2019 POM 2 - OS

35/70


Competitive Strategy in Operations reflect two perspectivesmarket requirements, and operations resources

Top-down

Bottom-up

Corporate strategy

Business strategy

Emergent sense ofwhat the strategy

should be

Operationalexperience

Operations

resources

Capacity

Supply networks

Process technology

Development andorganisation

Marketrequirements

Quality

Speed

Dependability

FlexibilityCost

Operations strategy reconciles the requirements of the

7/31/2019 POM 2 - OS

36/70


Operations strategy reconciles the requirements of themarket with the capabilities of operations resources

Operationsresources

Market requirements

Strategicreconciliation

OPERATIONSSTRATEGY

Market requirements and Operations Resources

7/31/2019 POM 2 - OS

37/70


Operations Strategy Relating to Competitive Strategy

7/31/2019 POM 2 - OS

38/70


DeliveredPerformance

Short & longTerm costs

OrderLoser

value

The value seesawValue = Performance / Cost

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

p gy g p gy

Operations strategy is the strategicreconciliation of market requirements withoperations resources

DIRECT getting the fit right

7/31/2019 POM 2 - OS

39/70


g g g

Fit means that the operations resources and processes are

aligned with the requirements of its markets.

Marketrequirements

Operations resource capability

7/31/2019 POM 2 - OS

40/70


X

Cost efficiency

Variety

A

C

D

B

The efficient

frontier

The efficient frontier view

DELIVERY SYSTEM DESIGN

7/31/2019 POM 2 - OS

41/70


A

X C

D

Cost efficiency

Variety

B

The new efficientfrontier

B1

DELIVERY SYSTEM DESIGN

GREAT WEAPONS OF THE STRATEGIST

7/31/2019 POM 2 - OS

42/70


1. Increase the contributions of the entire workforce

2. Satisfy customers3. 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

T d ff

7/31/2019 POM 2 - OS

43/70


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.

Some factors influencing Process

7/31/2019 POM 2 - OS

44/70


gDecisions

Operations strategy is the strategic reconciliation of

7/31/2019 POM 2 - OS

45/70


market requirements with operations resources

Tangible and

intangibleresources

Operationscapabilities

Operationsprocesses

Operationsstrategy

decision areas

Customerneeds

Marketpositioning

Competitorsactions

Performanceobjectives

Understandingresources

and processes

Strategic decisionsCapacitySupply networksProcess technologyDevelopment and

organisation

Required performanceQualitySpeedDependabilityFlexibility

Cost

Understandingmarkets

The operations strategy matrix

7/31/2019 POM 2 - OS

46/70




7/31/2019 POM 2 - OS

47/70


Operations strategy

Performanceobjectives Quality

Speed

Dependability

Flexibility

Cost

Developmentand

organisationCapacity

Supplynetwork

Processtechnology

Decision areas

Marketco

mpetitiveness

The operations strategy matrixResource usage

7-Eleven Japan

7/31/2019 POM 2 - OS

48/70


7-Eleven 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

Largest retailer in Japan

QUALITY of productsDistribution centregrouping by

Information sharingand parenting system

RESOURCE DEPLOYMENT

7/31/2019 POM 2 - OS

49/70


COST in terms of

minimising

operating costcapital cost

working capital

QUALITY of products

and services

Speed and

dependability combinedto indicate AVAILABILITY

FLEXIBILITY of

response to sales andcustomer trends

Area dominancereduces distribution

and advertising costs

Location of storesSize of stores

grouping bytemperature

Distribution centresand inventorymanagement systemsgive fast stock

replenishment

TIS allows trends tobe forecast andsupply adjustmentsmade

Common distributioncenters give small

frequent deliveriesfrom fewer sources

Number and type ofdistribution centres

Order and stockreplenishment

TIS givescomprehensive andsophisticated analysisof sales & supplypatterns daily

The TotalInformation System(TIS)

and parenting systemspreads serviceideas

Field counsellors withsales data help

stores to minimisewaste and increasesales

Franchiseerelationships

Newproduct/servicedevelopment

Approach tooperationsimprovement

DEVELOPMENT ANDORGANISATION

PROCESSTECHNOLOGY

SUPPLYNETWORKSCAPACITY

MarketCompetitiveness

Pivotal

Critical

Secondary

7-11 JAPAN

Polar diagram representing Process Decisions

7/31/2019 POM 2 - OS

50/70


Quality

TimelinessFlexibility

CostSpeed

Mass

Production

Batch

Production

Polar diagram representing Process Decisions

Polar diagram for Newspaper Collection (NC) and

7/31/2019 POM 2 - OS

51/70


Cost General recyclingservice

Polar diagram for Newspaper Collection (NC) andGeneral Recycling (GR) services

Dependability

FlexibilityQuality

Newspaper collectionservice

Speed

7/31/2019 POM 2 - OS

52/70


C l i c k t o e d i t c o m p a n y s l o g a n .

Operations strategy is

7/31/2019 POM 2 - OS

53/70


Operations strategy is

the total patternof decisions

whilst managing the risksof misalignment.

through the on-going reconciliation ofmarketrequirementsandoperations resources

and their contribution to overall strategy

ofany typeof operation ...

that shape the long-term capabilities

so as to achieve a sustainable fitbetween the two

What is strategy?

7/31/2019 POM 2 - OS

54/70


gyStrategy is manythings: plan, pattern, position, ployand perspective.

Strategy is ubiquitous. It can be found at the highest levels of corporate,

governmental, military and organizational endeavor and in small, medium and largeunits. It is everywhere.

Strategy is anabstraction, a construct. It has no concrete form or substance.

Strategy is the art of the general. In part, it is about the preparations made beforebattle, before the enemy is engaged. But it is also about avoiding battle and makingcombat unnecessary.

Strategy is a general plan of attack, an approach to a problem, the first step in linkingthe 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, "Weare headed thereby this path."

Strategy is a set of decisions made. What business are we in? What products andservices will we offer? To whom? At what prices? On what terms? Against which

competitors? On what basis will we compete?

Wh t i t t i t?

7/31/2019 POM 2 - OS

55/70


What is strategic management?

Strategic management is a set ofprocesses to manage and control anenterprise so that over the long-termthrough reconfiguring of scope,resources and competencies of the

organization, an advantage over rivals isachieved that fulfils stakeholderexpectations and meets the needs of thechanging environment.

Market and Resource perspective

7/31/2019 POM 2 - OS

56/70


p p

WHAT CUSTOMERS EXPECT FROM A HIGHLYRESPONSIVEBUSINESS

7/31/2019 POM 2 - OS

57/70


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

Short time to develop new products or services, delivercustomized or standard products and service, or change adesign to better satisfy customers.

Short time to respond to inquiries, change orderquantities, order mix, or delivery time.

Short time to correct customer complaints, servicefailures, defects, or dissatisfaction, so that they neverrecur.

Short time to provide support materials and services

The product-process matrix and the technology dimensions

7/31/2019 POM 2 - OS

58/70


Market requirements

Low volumeHigh variety

High volumeLow variety

High Cost Low

Low

Flexibility

High

A

B

C

Off the diagonal

High flexibilityRedundant capability

High costs

Off the diagonalLow flexibility

Insufficient capabilityHigh costs

Coup

ling

Autom

ation

Sca

le

Loose

Separated

High acuityand

judgement

Many,smallunits

IntegratedRigid Low acuityandjudgement

Few,large,units

Scale versus Scaleability

7/31/2019 POM 2 - OS

59/70


Few, large units ofprocess

technology

Many, small unitsof process

technology

Scale/ScaleabilityHigh Low

Scale issuesHigher capital costs

Economies of scale

Vulnerable to failure

All or nothing change

Scaleability issuesCustomised, legacy systems

Specific expertise required

Idiosyncratic processes

In-house development

Scale issuesLower capital costs

Demand matching

Failure redundancy

Upgrading easier

Scaleability issuesReliable architecture

Dispersed system skills

Standard processes

Outsourced?

Automation versus Analytical content

7/31/2019 POM 2 - OS

60/70


Process (technology

plus humans) haslow acuity and

judgement

Process

(technology plushumans) has high

acuity and

judgement

Automation issuesWhat degree of support is

required?

How flexible is the process?

How dependable is the process?

Analytical content issuesHigher capital cost

Parallel processing

Complex connectivity

Automation issuesHigher direct costs

Human control andjudgement

Human creativity

Analytical content issuesLower capital cost

Simple sequential rules

Often single point of

connection

Automation/Analytical contentHigh Low

Coupling and Connectivity

7/31/2019 POM 2 - OS

61/70


Technology is

integrated

Technology is

separated

Coupling issuesHigh capital costs

Better synchronisation

System efficiency

Connectivity issuesPlatform independence

Bandwidth available

Reliable middleware

Coupling issuesLower capital costs

Fragmentation or flexibility?

System robustness

Connectivity issuesCustomised, legacy

systems

Hard-wired

Restricted access

Coupling/ConnectivityHigh Low

Speed or rigidity?

Security concerns

Control flexibility

Process Decisions Make or Buy

7/31/2019 POM 2 - OS

62/70


Process Decisions - Make or BuyThere 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 tyreswhich 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.

Supply Chain Options

7/31/2019 POM 2 - OS

63/70


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.

Supply Chain Expansion

7/31/2019 POM 2 - OS

64/70


Product components, andInfrastructure components

To protect markets and the uniqueness of products

Framework for Outsourcing

7/31/2019 POM 2 - OS

65/70


Operations performance should be seen as awhole supply chain issue

7/31/2019 POM 2 - OS

66/70


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 changesChanges the nature of the supplierbuyer relationship

Types of supply relationship

w er

7/31/2019 POM 2 - OS

67/70


Partnership

supplyrelationships

Do nothing Do everything

The character of internal operations activity

Virtualspot

tradingResource scope

Long-termvirtual

operation

Vertical

integration

Traditionalmarketsupply

Typ

eofinter-firm

contact

Transaction

al

many

suppliers

Close

few

supplie

s

DRIVING CHANGE

7/31/2019 POM 2 - OS

68/70


Delivery SystemsRedesign

New Process IntentNew Process Model

New Learning andImprovement System

New Value-AddingTechnology

ContinuousImprovement

Reduction of Valueless time

Valueless activity Valueless variance

Often

non-linear

Usually

linear

The sectoral scope of operations strategy

7/31/2019 POM 2 - OS

69/70


Products or services?

Manufacturing or non-manufacturing?

For profit or not-for-profit?

Broad strategic objectives for a parcel delivery operationapplied to stakeholder groups

7/31/2019 POM 2 - OS

70/70


SocietyIncrease employment

Enhance community well-beingProduce sustainable productsEnsure clean environment Customers

Appropriate product orservice specificationConsistent quality

Fast deliveryDependable delivery

Acceptable price

SuppliersContinue businessDevelop supplier

capabilityProvide transparent

information

ShareholdersEconomic value from

investmentEthical value from

investment

EmployeesContinuous employment

Fair payGood working conditionsPersonal development

pom 2 - os

Documents