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1
Operat ions Strategy
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2
Global Strategies
Benetton moves inventory to storesaround the world faster than i ts
com peti tion by bu i ld ing f lex ib i l ity into
design, product ion, and dis t r ibut ion
Sony purchases com ponents f rom
supp l iers in Thai land , Malaysia, andaround the wo r ld
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3
Global Strategies
Volvo considered a Swedish companybu t i t is con tro l led by an American
company, Ford . The cur rent Volvo S40 is
bu i l t in Belgium and shares its platform
w ith the Mazda 3 bui l t in Japan and theFord Focus bui l t in Europe.
Haier A Chinese company, producescompact refr igerators (i t has one-thi rd of
the US market) and w ine cabinets (i t has
half of the US market) in Sou th Carol ina
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4
Some Multinational Corporations
% Sales % As sets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce
Cit icorp USA 34 46 NA
Colgate- USA 72 63 NAPalmol ive
Dow USA 60 50 NA
ChemicalGillette USA 62 53 NA
Honda Japan 63 36 NA
IBM USA 57 47 51
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Some Multinational Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce
ICI Britain 78 50 NA
Nestle Switzerland 98 95 97
Phi l ips Nether lands 94 85 82Electronics
Siemens Germany 51 NA 38
Unilever Br itain & 95 70 64Netherlands
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6
Some Boeing Suppliers (787)
Firm Country Component
Latecoere France Passenger doors
Labinel France Wir ing
Dassault France Design andPLM software
Mess ier-Bugatt i France Electr ic brakes
Thales France Electr ic al power
convers ion sy stem
and integrated
standby f l igh t display
Mess ier-Dow ty France Land ing gear stru ctu re
Diehl Germany Inter ior l ight ing
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Some Boeing Suppliers (787)
Firm Country Component
Cobham UK Fuel pumps and valves
Rol ls-Royce UK Engines
Smiths Aerospace UK Central com putersystem
BAE SYSTEMS UK Electronic s
Alenia Aeronautics Italy Upper center
fuselage &
ho rizon tal stabi l izer
Toray Indus tr ies Japan Carbon fiber for
wing and tail uni ts
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Some Boeing Suppliers (787)
Firm Country Component
Fuj i Heavy Japan Center w ing box
Industr ies
Kawasaki Heavy Japan Forward fuselage,
Industr ies f ixed sect ion of wing,
land ing gear well
Teij in Seiki Japan Hydraul ic actuators
Mitsub ishi Heavy Japan Wing box
Industr ies
Chengdu Aircraf t China Rudder
Group
Hafei Aviat ion China Parts
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Some Boeing Suppliers (787)
Firm Country Component
Ko rean Av iat ion South Wingt ips
Korea
Saab Sweden Cargo access doors
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Reasons to Globalize
Reasons to Global ize
1. Reduce costs (labo r, taxes, tar i f fs, etc.)
2. Imp rove supp ly chain
3. Prov ide bet ter goods and serv ices
4. Unders tand m arkets
5. Learn to improve operat ions
6. At t rac t and retain g lobal talen t
Tangible
Reasons
IntangibleReasons
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11October 11, 2013
Operations Strategy
Strategic planning exercise Enables an organisation to respond to the market
needs in the most effective manner
By aligning various resources and activities in theorganisation
To deliver products & services that are likely tosucceed in the market
Operations Strategy
Is a process by which key operations decisions aremade that are consistent with the overall strategicobjectives of a firm
Decisions in the operations function are made on the
basis of the inputs from the overall corporate strategy
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12October 11, 2013
Need for Operations Strategy
Competitive dynamics and expectations of customerschange with time
Due the changes in market place, competitive prioritiesfor an organisation is likely to change While it was customary for people to book for a passenger car and wait
for a few months to get delivery of the car, today a manufacturer ofpassenger cars cannot afford to make customers wait that long
ABB Ltd. reported that the price of a 33 KV circuit breaker dropped fromRs. 275,000 in 1990 to Rs. 180,000 in 1999.
Triveni Engineering, a manufacturer of Turbines faced a 40% reductionin the price of turbines in the less than 3.5 million watts category overthe last six years
Need a mechanism to systematically respond to thesechanges in the most effective way
Need to tune their operations to match with thecompetitive priorities
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13October 11, 2013
Strategy formulation process
Competitive
Dynamics at
the marketplace
Strategic options for
Sustaining
competitive advantage
Order winners
Order Qualifiers
Firm level
Strengths &
WeaknessesCorporate Strategy
Operations StrategyMeasures for
Operational Excellence
Strategic decisions for
Operations System
Generic Competitive Priorities
Quality, Cost,
Delivery, Flexibility
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14October 11, 2013
Order Qualifiers & Order Winners
Order qualifying attributes are the set of attributesthat customers expect in the product or service theyconsider for buying
Order winning attributes are other attributes thathave the potential to sufficiently motivate thecustomer to buy the product or service
What constitutes order winning and order qualifyingmight change from time to time
During the early 1980s providing superior quality productswas an order winning attribute. However, in the 1990squality became an order qualifying attribute as customersbegan to expect high levels of quality
Order winning attributes include efficient consumer
response, speed, variety and convenience
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16October 11, 2013
Operation Strategy OptionsProduct Portfolio
Product portfolio pertains to decisions on what products the organization wants to produce
the number of variations in each product line
the extent of customization offered to customers
Product portfolio as a strategic option Wide product portfolio: Overall strategic objective is to provide
highly differentiated set of products and services to the customer
Narrow product portfolio: Overall strategic objective is one of costleadership
Examples in Services & Manufacturing
Air travel Hotel and catering business
Computer manufacturers, Dell and IBM (Lenovo): Overall strategicobjective of Dell appears to be one of providing highly differentiatedproducts, IBM appears to emphasise on robust and reliablecomputing power
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17October 11, 2013
Process Choice
Low Moderate High
Volume
High
Moderate
Low
Var
ietyo
fPro
du
cts
Process-focused
JOB SHOPS
(Pr int sh op, emergency
room, machine shop,
fine-dining
restaurant)
Repeti t ive (modular)
focusASSEMBLY L INE
(Cars, appl ianc es,
TVs, fast-foodrestaurants) Product focused
CONTINUOUS
(steel, beer, paper,
bread, institutionalkitchen)
Mass Custom izat ion
Custom izat ion at high
Volume
(Dell Computers PC,cafeteria)
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18October 11, 2013
Operation Strategy OptionsTechnology Choices
Technological advancements in recent years have given new
opportunities for creating competitive advantage for firms
Case of Asian Paints utilising technological advancements for mixing of
basic pigments to distribute paints in large varieties of colours and in
large assortment of sizes
Using new technology options for manufacturing processes,
organisations can
react faster to customer needs
manage a wide portfolio of product offerings and
yet maintain high levels of productivity
Organisations making a strategic choice to operate in the
manufacture of mid-volume, mid-variety products could utilise new
technology
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19October 11, 2013
New Technology OptionsStrategic Advantages
Scheduling flexibility: Permits an organization to have flexibility in
scheduling thereby enabling the organization to react to changes
fast
Ease of engineering challenges: Changes in engineering design
and process plans can be easily accommodated by use oftechnology based manufacturing and process design.
Ease of expansion: Provides volume flexibility to the organisation,
making it much easier to expand in response to a growing market
Increased machine utilization and Reduced manufacturing lead
time
Lower in-process inventory: Several of the above benefits directly
translate to lower work in process inventory and reduced cost of
manufacturing
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20October 11, 2013
Operation Strategy OptionsSupply Chain issues
Supply chain refers to the network of entities supplyingcomponents and raw material to an organization as wellas those distributing the finished goods of anorganization to the customers through alternativechannels
Designing an appropriate supply chain calls for a betterunderstanding of the product profile for which the supplychain is configured
Two types of supply chains can be configured: Efficient supply chain: objective is cost optimization and better
utilization of resources employed in supply chain operations;typically used in the case of functional products
Responsive supply chain: the key objective is to develop acapability to respond fast to the market requirements; typically usedin the case of innovative products
What is the right supply chain for your product? Marshall Fisher
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21October 11, 2013
Operations Strategic Role in the
Organization
Output
Cost
Quality
Delivery
Flexibility
Service
Innovativeness
Environment
}
} Competitive
} Priorities:} Qualifying vs.
} Order Winning
}
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22October 11, 2013
Strategic Trade-Offs in
Operations
Cutting costs by
picking cheapest
vendor may affect
quality
Offering greater
variety andcustomization may
increase response
time
Cost
Quality
DeliveryFlexibility
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23October 11, 2013
Trade-Offs in Operations ..
Managerial decision-making is complexmainly due to constraints and trade-offs,
e.g.:
Inventory vs. Ordering costs Fixed vs. Variable costs
Prevention vs. Failure & Rectification
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24October 11, 2013
Degree of Prevention Effort
.. Trade-Offs in Operations
Failure &Rectification
Costs
Prevention
Costs
Total Cost
C
O
S
T
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25October 11, 2013
Strategies for Competitive Advantage
Differentiation better, or at least
different
Cost leadership cheaper
Response rapid response
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27October 11, 2013
Competing on Cost
Provide the maximum value as
perceived by customer. Does not imply
low quality.
Southwest Air l ines secondaryairports , no fr i l ls service, eff ic ient
ut i l izat ion o f equipm ent
Wal-Mart smal l overheads , sh rinkage,d is t r ibut ion co sts
B ig Bazaar least expensive produc ts,ow n brands, Inventory
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28October 11, 2013
Competing on Response
Flexibility is matching market changes indesign innovation and volumes Institutionalization at Hewlett-Packard
Reliability is meeting schedules German machine industry
Timeliness is quicknessin design, production,
and delivery Lunch Hotels in Mumbai,
Motorola
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29October 11, 2013
OMs Contribution to Strategy
Product
Quality
Process
Locat ion
Layout
Humanresource
Supply chain
Inventory
Schedul ing
Maintenance
FLEXIBILITY:Sonys constant innovationof new products....DesignHPs ability to leadthe printer marketVolume
Southwest Air l ines No-frills service....LOW COST
DELIVERY:Pizza Huts 5-minu te guaranteeat lunchtime.....SpeedFederal Expresss absolutely,
positively on time...Dependabil i ty
QUALITY:Motorolas HDTV converters.........ConformanceMotorolas pagers...Performance
Caterpillars after-sale servi ceon heavy equipment....AFTER-SALE SERVICE
Fidelity Securitys broadline of mutual funds.BROAD PRODUCT LINE
Figure 2.4
Operations Specif ic Comp et i t iveDecisions Examples Strategy Used Advantage
Response
(Faster)
Cost
leadership
(Cheaper)
Differentiation
(Better)
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30October 11, 2013
10 Strategic OM Decisions
1. Goods and service
design
2. Quality3. Process and
capacity design
4. Location selection
5. Layout design
6. Human resources
and job design
7. Supply chainmanagement
8. Inventory
9. Scheduling
10. Maintenance
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Goods and Services and
the 10 OM DecisionsOperations
Decisions Goods Services
Goods and
servicedesign
Product is usually
tangible
Product is not
tangible
Quality Many objective
standards
Many subjective
standards
Process andcapacity
design
Customers notinvolved
Customer may bedirectly involved
Capacity must
match demand
Table 2.1
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Goods and Services and
the 10 OM DecisionsOperations
Decisions Goods Services
Location
selection
Near raw materials
and labor
Near customers
Layout
design
Production
efficiency
Enhances product
and production
Humanresources
and job
design
Technical skills,consistent labor
standards, output
based wages
Interact withcustomers, labor
standards vary
Table 2.1
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Goods and Services and
the 10 OM DecisionsOperations
Decisions Goods Services
Supply chain Relationship critical
to final product
Important, but may
not be critical
Inventory Raw materials,
work-in-process,
and finished goods
may be held
Cannot be stored
Scheduling Level schedules
possible
Meet immediate
customer demandTable 2.1
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34October 11, 2013
Goods and Services and
the 10 OM DecisionsOperations
Decisions Goods Services
Maintenance Often preventive
and takes place atproduction site
Often repair and
takes place atcustomers site
Table 2.1
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35October 11, 2013
Managing Global Service Operations
Capaci ty p lann ing
Location planning
Faci l i t ies design and layout
Schedul ing
Requ ires a d if ferent perspect ive on :
C ti Th h O ti
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36October 11, 2013
Competing Through Operations:
Attacking
Some examples:
Reliance, Wal-mart, Southwest Airlines,
Capabilities: be(com)ing better at the game
Developing integrated systems of technologies & skills
Positioning: appealing to a different need or
priority
Seek advantage along dimensions under-emphasizedby competitors
C ti Th h O ti
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37October 11, 2013
Competing Through Operations:
Defending and/or Counter-Attacking
Some examples: HLL vs. Nirma
Recognize attack quickly and emulate strategy,before attacker gets too far ahead, or developsunique capabilities
Exploit internal Operations strengths to (re)groupand react
Identify and attack weaknesses in attackerssystems
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38October 11, 2013
Flexibility Cost Trade-off
Flexibility
Cost Flexibility and Cost are
often viewed ascompeting dimensions inOperations Strategy
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39October 11, 2013
Operational ExcellencePerformance Measures
Provide critical linkage between order winning and order
qualifying attributes and choices made in operations
Help organizations evaluate how well the operations
system is responding to the requirements at themarketplace
Serve a useful purpose in comparing performances
amongst competitors and for benchmarking
Four generic options are useful for developing measuresfor operational excellence; this includes Quality, Cost,
Delivery and Flexibility
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Measures for operational
excellence: An examplePerformance Criterion for Comparison (1987) Japan@ U.S.*
Production of vehicles (Million) 4 8
Number of employees 37,000 850,000
Parts on which detailed Engg. is done (%) 30 81
No. of employees in purchasing 337 6000
Number of suppliers for upholstery 1# 25**
Design to customer delivery time (million Hrs.) 1.7 3
Design to customer delivery time (months) 46 60
Group A Group B Group C
61.6 1.4 0.4
380.3 370.0 46.4
1.4 11 1246.2 60.4 57.3
47 to 84 43 to 49 36 to 53
2100 1475 1100
170 238 509
45% 35% 15%
None 10 n.a.
No. of suppliers per plant
Proportion of parts delivered JIT
No. of plants closed down during 1987-90
Source: Womack, J.P., Jones, D.T. and Roos, D. (1990), The Machine that changed the world, Rawson Associates.
@ - Data pertaining to Toyota; * - Data pertaining to GM
# - Single supplier; ** - 25 Suppliers were supplying components to seat buiding department.
Performance Criterion for comparison
Suggestions/Employee
Training of new production workers (Hrs.)
Return to normal quality after new model introduction (months)Average development time per new car (months)
No. of models between 1982 & 1989
No. of patents in motor vehicle industry (1986)
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Operational ExcellencePerformance measures
Quality Cost
First Pass Yield Average days of inventory (No. of inventory turns)
Quality Costs Manufacturing cost as percent of sales
Defects (Parts per Million) Procurement costs
Number of suggestions per employee Value of import substitution, cost reduction
Process Capability Indices Target cost reduction efforts
Delivery Flexibility
Lead time for order fulfillment Number of models introduced
Procurement and Manufacturing Lead time New product development time
On time delivery for supplies Breadth and depth of the product offerings
Schedule adherence Process & Manufacturing flexibility
Indirect Measures
Direct labour to Indirect labour ratio Number of suggestions per employee
Lead time to work content Non-value added content in processes
Process rate to sales rate ratio No. of certified deliveries
Average training time per employee Delivery quote for customised products
