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Operations Strategyand
Competitiveness
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Operations Strategy as a competitive weapon
One of the key objectives of any business organization is to reach a position where it is able to attract more customers than it’s competitors
• Shorter Product Cycle / Pioneer status advantage
• Production flexibility
• Low-cost process (e.g. Outsourcing)
• Convenience and Location (e.g. Courier services)
• Product variety and Facility size (e.g. super markets)
• Quality (e.g. MNCs’ producing cars in India for Exports)
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Competitive Dimensions• Cost or Price
Make the Product or Deliver the Service Cheap• Quality
Make a Great Product or Deliver a Great Service• Delivery Speed
Make the Product or Deliver the Service Quickly• Delivery Reliability
Deliver It When Promised• Coping with Changes in Demand
Change Its Volume• Flexibility and New Product Introduction Speed
Change It• Other Product-Specific Criteria
Support It
4Order Qualifiers and WinnersDefined
Order qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers
Order winners are the criteria that differentiates the products and services of one firm from another
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Service Breakthroughs
A brand name car can be an “order qualifier”
Repair services can be “order winners” Examples: Warranty, Roadside Assistance, Leases, etc
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Operations StrategyExampleStrategy Process
Customer Needs
Corporate Strategy
Operations Strategy
Decisions on Processes and Infrastructure
More Products
Increase Org. Size
Increase Production Capacity
Build New Factory
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Strategy Design Process
Strategy Map
Financial Perspective
Customer Perspective
Internal Perspective
Learning and Growth Perspective
Improve Shareholder Value
Customer Value Proposition
Build-Increase-Achieve
A Motivated and Prepared Workforce
What it is about!
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The Balanced Scorecard
Judicious mix of financial and operational measures for measuring the performance
• Customer perspective
• Business process perspective
• Innovation and learning perspective
• Financial perspective
Balanced Scorecard Model for Measuring Operations Performance
Financial Perspective
Goals Measures
Customer PerspectiveGoals Measures
Innovation & Learning PerspectiveGoals Measures
Internal / Process PerspectiveGoals measures
How do customers view the Operations?
At which Operations tasks must we excel
How do stakeholders view Operations?
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Kaplan and Norton’s Generic Strategy Map
In the Kaplan and Norton’s Generic Strategy Map, under the Financial Perspective, the Productivity Strategy is generally made up from two components:
1. Improve cost structure: Lower direct and indirect costs
2. Increase asset utilization: Reduce working and fixed capital
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Kaplan and Norton’s Generic Strategy Map (Continued)
In the Kaplan and Norton’s Generic Strategy Map, under the Financial Perspective, the Revenue Growth Strategy is generally made up from two components:
1. Build the franchise: Develop new sources of revenue
2. Increase customer value: Work with existing customers to expand relationships with company
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Kaplan and Norton’s Generic Strategy Map (Continued)
In the Kaplan and Norton’s Generic Strategy Map, under the Customer Perspective, there are three ways suggested as means of differentiating a company from others in a marketplace:
1. Product leadership2. Customer intimacy3. Operational excellence
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Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy
Map, under the Learning and Growth Perspective, there are three principle categories of intangible assets needed for learning:
1. Strategic competencies2. Strategic technologies3. Climate for action
Developing an Operations StrategyCorporate Objectives
Business Strategies
Operations Objectives
Operation Strategies
Long-range Decisions about Products, Processes and FacilitiesPosition the Production SystemFocus of Factories or Service FacilitiesProduct / Service Design and DevelopmentAllocation of Resources to AlternativesFacility Planning : Capacity, Location and Layout
Business Plan
Marketing Plan
Budget
Production Plan
Other Plan
Functional Areas
OperationsMarketingFinancing/AccountingResearch & Dev. Human CapitalStrengths and Weaknesses
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Steps in Developing a Manufacturing Strategy
1. Segment the market according to the product group
2. Identify product requirements, demand patterns, and profit margins of each group
3. Determine order qualifiers and winners for each group
4. Convert order winners into specific performance requirements
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Service Strategy Capacity Capabilities
• Process-based Capacities that transforms material or information and
provide advantages on dimensions of cost and quality
• Systems-based Capacities that are broad-based involving the entire
operating system and provide advantages of short lead times and customize on demand
• Organization-basedCapacities that are difficult to replicate and provide
abilities to master new technologies
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What is Productivity?Defined
Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio:
Outputs Inputs
Productivity – Introduction & Definition
• Productivity primarily is an attitude of mind – an attitude of looking at the scope for improvement
• It stands for the elimination of MUDA( Japanese ) or Waste in all forms
• It is the function of providing more and more of everything, for more and more people with less and less consumption of Resources
• The essence of productivity lies in producing the same volume with less resources or producing more output with proportionately less increase in inputs
Factors affecting ProductivityExternal Factors
• Beyond the control of individual Enterprise
• External Infrastructure
• Non- availability of Funds, Water, Power, Transportation
• Raw Material Supply constraints
• Government Policies ( Emission Laws etc.)
• Social / Political / Economic Environment
Factors affecting Productivity ( contd.)
Internal Factors
• Hard Factors – Products / Technology / Plant & Eqpt. / Raw Materials
• Soft Factors – People / Work Methods / Systems & Procedures / Organisation Structure / Management Practices
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Total Measure ProductivityTotal Measure Productivity = Outputs
Inputs
or = Goods and services produced
All resources used
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Partial Measure Productivity
Partial measures of productivity =
Output or Output or Output or Output Labor Capital Materials Energy
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Multifactor Measure Productivity
Multifactor measures of productivity =
Output . Labor + Capital + Energy
or
Output . Labor + Capital + Materials
24Example of Productivity Measurement
You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms.
Which productivity measure should be used? Answer: Could be classified as a Total Measure or
Partial Measure. Is productivity increasing or decreasing? Answer: Last week’s productivity = 480/2000 = 0.24,
and this week’s productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly.
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Question BowlAn operations strategy is concerned
with which of the following?a. Setting specific policies and plansb. Short-term competitive strategiesc. Coordination of operational goalsd. All of the abovee. None of the aboveAnswer: c. Coordination of operational goals
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Question BowlTypically a strategy breaks down
into what major components?a. Operations effectivenessb. Customer managementc. Production innovationd. All of the abovee. None of the above
Answer: d. All of the above
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Question BowlA criterion that differentiates the
products and services of one firm from another can be which of the following?
a. An order qualifierb. An order winnerc. PWPd. KPIe. None of the above
Answer: b. An order winner
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Question Bowl A travel agency processed 240 customers on Day 1
with a staff of 12, and 360 customers the on Day 2 with a staff of 15. What can be said about the productivity shift from Day 1 to Day 2?
a. An increase in productivity from Day 1 to Day 2b. A decrease in productivity from Day 1 to Day 2c. The same productivity from Day 1 to Day 2d. Can not be computed from data abovee. None of the above
Answer: a. An increase in productivity from Day 1 to Day 2(Day 1 productivity = 240/12=20
Day 2 productivity = 360/15=24)
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Question BowlIn addition to traditional financial measures, what
critical questions can a Balanced Scorecard help a company answer?
a. How do customers see us?b. What must we excel at?c. How can we continue to improve and create
value?d. All of the abovee. None of the above
Answer: d. All of the above
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Solved Problems – OPERATIONS MANAGEMENT(Class of 2010)
Q3. d) Various financial data for 2002 & 2003 follow. Calculate the total productivity measure and the partial measure for labour, capital and raw materials for this company
for both years. What do these measures tell you about this company?
Answer :- Total Productivity = Output Input
2002 2003Output Sales $
2,00,000$2,20,000
Input Labour 30,000
40,000
Raw Material
35,000
45,000
Energy 5,000
6,000
Capital 50,000
50,000
Others 2,000
3,000
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Output 2002 20032,00,000 2,20,000
Input 2002 2003
Labour 30,000 40,000Raw Materials 35,000 45,000Energy 5,000 6,000Capital 50,000 50,000Others 2,000 3,000
Total Inputs 1,22,000 1,44,000
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a) Total Productivity measure
Year 2002
Total Productivity = Output Input
= 2,00,000 1,22,000
= 1.66Year 2003
Total Productivity = 2,20,000 1,44,000
= 1.53
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b) Partial Productivity measure (Labour)
Partial Productivity measure = Total Output Cost of Labour
for the year 2002 = 2,00,000 = 6.67 30,000
for the year 2003 = 2,20,000 = 5.5 40,000
c) Partial Productivity measure (Capital)
Partial Productivity measure = Total Output Capital
for the year 2002 = 2,00,000 = 4 50,000
for the year 2003 = 2,20,000 = 4.4 50,000
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d) Partial Productivity measure (Raw Materials)
Partial Productivity measure = Total Output Cost of Raw Materials
for the year 2002 = 2,00,000 = 5.71 35,000
for the year 2003 = 2,20,000 = 4.88 45,000