Chapter 2 Operations Strategy To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.

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Strategy Formulation Define a primary task Assess core competencies Determine order winners & order qualifiers Positioning the firm

Primary Task What business the firm sees itself in How the firm adds value to its customer THE FIRM’S VALUE PROPOSITION

Core Competencies What a firm does better than anyone else Based on experience and knowledge NOT products and services, equipment and technologies or customers and markets Core competencies need to align with the firm’s value proposition

Order Winner The characteristic of a product or service that wins orders in the marketplace

Order Winners and Core Competencies Ideally, the marketplace order winner should align with a firm’s core competency

Positioning Making strategic choices No firm can be all things to all people Choosing one or two important dimensions and doing them extremely well An effective positioning strategy considers the needs of the marketplace, strengths/weaknesses of the organization, and position of competitors.

Dimensions of Competition Cost C Y Quality Y C Flexibility Y C Speed C Y

Competing on Cost Eliminate all waste Invest in Updated facilities & equipment Streamlining operations Training & development

Competing on Quality Please the customer Understand customer attitudes toward and expectations of quality

Competing on Flexibility Produce wide variety of products Introduce new products Modify existing products quickly Respond to customer needs

Competing on Speed Fast moves Fast adaptations Tight linkages

Operations Role in Corporate Strategy Provide support for overall strategy of a firm Serve as firm’s distinctive competence Must be consistent with overall strategy

Operations Strategy at Wal-Mart

Operations Strategy at Wal-Mart Provide value for our customers Low prices, everyday Low inventory levels Linked communications between stores Short flow times Fast transportation system Cross-docking Focused locations EDI/satellites Wal-Mart Mission Competitive Priority Operations Strategy Operations Structure Enabling Process and Technologies Figure 2.1

Strategy and the Internet Create a distinctive business strategy Strengthen existing competitive advantages Integrate new and traditional activities Must provide a unique value to the customer

Strategic Decisions in Operations

Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services Operating Systems Figure 2.2

Products & Services Make-to-order Make-to-stock Assemble-to-order Made to customer specifications after order received Make-to-stock Made in anticipation of demand Assemble-to-order Add options according to customer specification

Processes & Technology Project One-time production of product to customer order Batch production Process many jobs at same time in batch Mass production Produce large volumes of standard product for mass market Continuous production Very high volume commodity product

Product-Process Matrix

Product-Process Matrix Volume Low High Projects Batch Production Mass Continuous Standardization Figure 2.3

Service-Process Matrix

Service-Process Matrix Labor Intensity High Low Professional Service Service Shop Mass Service Service Factory Customization Figure 2.4

Capacity & Facilities How much capacity to provide Size of capacity changes Handling excess demand Hiring/firing workers Need for new facilities

Facilities Best size for facility? Large or small facilities Facility focus Facility location Global facility

Human Resources Skill levels required Degree of autonomy Policies Profit sharing Individual or team work Supervision methods Levels of management Training Leadership

Quality Target level Measurement Employee involvement Training Systems needed to ensure quality Maintaining quality awareness Evaluating quality efforts Determining customer perceptions

Sourcing Degree of vertical integration Supplier selection Supplier relationship Supplier quality Supplier cooperation

Operating Systems Execute strategy daily Information technology support Effective planning & control systems Alignment of inventory levels, scheduling priorities, & reward systems

Strategic Planning

Strategic Planning Mission and Vision Corporate Strategy Voice of the Business Customer Marketing Strategy Operations Strategy Financial Strategy Figure 2.5

Policy Deployment Hoshin planning Focuses employees on common goals & priorities Translates strategy into measurable objectives Aligns day-to-day decisions with strategic plan

Derivation of an Action Plan

Derivation of an Action Plan Reduce business cycle time by 50% Reduce production cycle time by 30% Reduce queue time by 50% Reduce setup time by 50% Cut lot sizes in half Reduce purchasing cycle time by 30% Increase electronic transactions by 30% Redesign supplier quality reporting process Set up supplier education groups Reduce supplier base by 50% What Who When Measure Resource Improve Billy 9-1-03 Average $5,000 work Wray queue flow time per job . . . Figure 2.6

Balanced Scorecard Finance — How should we look to our shareholders? Customer — How should we look to our customers? Processes — At which business processes must we excel? Learning and Growing — How will we sustain our ability to change and improve?

Mobil’s Strategy Map

Mobil’s Strategy Map Figure 2.7 Finances Customers Processes Volume growth Delight the customer Create new products & services Personal growth Net margin Win-win dealer relations Deliver products on spec, on time Process improvement Build best-in-class franchise Functional excellence Revenue Growth Strategy Finances Customers Processes Learning and Growth Clean/safe/fast Convenience store Align goals Teamwork, quality Strategic & job skills Develop business skills Inventory management New technology Nongasoline products & services More premium brands Figure 2.7

Issues and Trends Global markets, sourcing, operations Virtual companies Greater choice Emphasis on service Speed and flexibility Supply chains C-commerce Technological advances Knowledge Environment and social responsibilities

The Changing Corporation

The Changing Corporation 20TH CENTURY 21ST CENTURY CHARACTERISTIC CORPORATION CORPORATION Organization The Pyramid The Web Focus Internal External Style Structures Flexible Source of strength Stability Change Structure Self-sufficient Interdependencies Resources Physical assets Information Operations Vertical integration Virtual integration Products Mass production Mass customization Reach Domestic Global Financials Quarterly Real-time Inventories Months Hours Strategy Top-down Bottom-up Leadership Dogmatic Inspirational Workers Employees Employees, free agents Job expectations Security Personal growth Motivation To compete To build Improvements Incremental Revolutionary Quality Affordable best No compromise Table 2.1