Developing an Operations Strategy: Deploying Resources, Processes and Operations Dr Simon Croom. Smartlink Fellow, University of South Australia

Overview We tend to see strategic success as all about markets, products and services. We forget that we rely on our processes, as well as those of our suppliers, collaborators and distributors. Many businesses now recognise that strategic capabilities are determined by HOW they develop, produce and deliver goods and services to their customers. This session focuses on strategic development It will provide some basic Principles to help you improve strategic performance

What is ‘OPERATIONS’ Strategy? “The strategic direction and development of the resources and processes which produce and deliver products and services to customers”. Operations Strategy, By Nigel Slack & Michael Lewis Pearson Publishing http://www.booksites.net/download/slack/download.htm

Principle The clash between the nature of external markets and the nature of internal resources Market Requirements are…. Dynamic Heterogeneous Ambiguous Operations Resources are…. Difficult to change Technically constrained Complex BT3

The strategic role of operations can be defined by its aspirations (after Hayes and Wheelwright) Principle Give an Operations Advantage Redefine the industry’s expectations Externally supportive Link Strategy With Operations Be clearly the best in the industry Increasing contribution of operations Internally supportive Be as good as competitors Adopt best Practice Externally neutral Stop holding the organisation back Correct the Worst Problems Internally neutral STAGE 1 STAGE 2 STAGE 3 STAGE 4 The ability to Implement The ability to support Strategy The ability to Drive strategy

Implementing Supporting Driving The Strategic Role of the Operations Functions The 3 key attributes of operations Operations Contribution Implementing be Dependable Operationalise strategy explain Practicalities Supporting be Appropriate Understand strategy Contribute to decisions Driving be Innovative provide Foundation of strategy Develop long-term Capabilities

Principle Operations can kick-start two virtuous cycles Internal and External Understanding of the processes Strong marketing Competitiveness Competencies embedded in the operation World Class Operations High margin Capabilities enhance innovation and improvement Investment Developing the resources which let the operation’s performance stay ahead of the competition Developing customers’ competitors’ and stockholders; perceptions and expectations

The operations function can provide a competitive advantage through its performance at the five competitive objectives Quality Being RIGHT Speed Being FAST Dependability Being ON TIME Competitiveness Flexibility Being ABLE TO CHANGE Cost Being PRODUCTIVE

How is each performance objective being viewed? The onset of “Total Quality Disillusionment” ISO 9000 sweeps the world (except Japan!) Quality Value added methodology increasingly powerful Major benefit of BPR Return of the JEDI Speed Dependability Being monitored by customers Competitiveness Long term technology flexibility proving difficult to achieve More closely defined - “rigid flexibility” Flexibility Increasing cost pressures Overcoming the volume and variety effects New ways of looking at costs Cost

Competitive Objectives are prioritized by CUSTOMERS and COMPETITORS The first task of an Operations Strategy is to clarify the relative priorities of the competitive objectives Quality Speed Competitive Objectives are prioritized by CUSTOMERS and COMPETITORS Dependability Competitiveness Flexibility Cost

Operations Policies are shaped by COMPETENCIES and CONSTRAINTS Operations Strategy Decision Areas Determine Resource Deployment Resource Deployment Capacity Structure Process Technology Supply Network Development and Organisation ISSUES - VERTICAL INTEGRATION SUPPLIER DEVELOPMENT DEVELOPMENT CHAINS STRATEGIC VALUE FACILITATION ISSUES - DEVELOPMENT RATE AUTOMATION SIZE INTEGRATION IN OR OUT-HOUSE DEVELOPMENT ISSUES - ISSUES - RESPONSIBILITY RELATIONSHIPS IMPROVEMENT STRATEGIES PERFORMANCE & CONTROL CAPACITY LOCATION FOCUS & SEGMENTATION L/T FORECASTS Operations Policies are shaped by COMPETENCIES and CONSTRAINTS

Operations strategy is defined by the intersections of performance objectives and substrategies Principle Resource Deployment Quality Speed Operations Strategy Competitive Objectives are prioritized by CUSTOMERS and COMPETITORS Dependability Market Competitiveness Flexibility Cost Development and Organization Capacity Structure Process Technology Supply Network Operations Policies are shaped by COMPETENCIES and CONSTRAINTS

Operations strategy is defined by the intersections of performance objectives and substrategies Resource Deployment Quality key Speed key Competitive Objectives are prioritized by CUSTOMERS and COMPETITORS Dependability key Market Competitiveness Flexibility key Cost key key Development and Organization Capacity Structure Process Technology Supply Network Operations Policies are shaped by COMPETENCIES and CONSTRAINTS

How to ensure a strategic Fit

Prioritizing Objectives Priorities should be determined by ...... Your PERFORMANCE in each of the competitive objectives The IMPORTANCE of each competitive objective IMPROVEMENT PRIORITIES

Principle ORDER-WINNING OBJECTIVES QUALIFYING OBJECTIVES Competitive Benefit Achieved performance ORDER-WINNING OBJECTIVES +ve neutral -ve Low High qualifying level QUALIFYING OBJECTIVES Competitive Benefit Achieved performance +ve neutral -ve Low High LESS IMPORTANT OBJECTIVES Competitive Benefit Achieved performance +ve neutral -ve Low High

Principle Competitive Benefit Achieved Performance Qualifiers Qualifiers are the “givens” of doing business Order Winners Order Winners gain more business the better you are Delights Adding Delights Time Delights become Order winners and Order winners become Qualifiers Positive Competitive Benefit Neutral Negative Low High Achieved Performance

A method for identifying our ‘strategic’ operations priorities Identify what is important to customers Assess how well we perform Relate our performance to customer’s or market requirements

9 Point Importance Scale For this product group does this performance objective ...... 1 - Provide a crucial advantage with customers 2 - Provide an important advantage with most customers 3 - Provide a useful advantage with most customers ORDER WINNING OBJECTIVES 4 - Need to be up to good industry standard 5 - Need to be around median industry standard 6 - Need to be within close range of the rest of the industry QUALIFYING OBJECTIVES 7 - Not usually important but could become more so in future 8 - Very rarely rate as being important 9 - Never come into consideration LESS IMPORTANT OBJECTIVES

Temperature controlled - Overnight service Example IMPORTANCE to Customers 1 2 3 4 5 6 7 8 9 PRICE X SERVQUAL (DISN.) X SERVQUAL (ORDER TAKE) X ENQUIRY LEAD-TIME X DROP QUOTE X WINDOW QUOTE X DELIVERY PERFORMANCE X DELIVERY FLEXIBILITY X VOLUME FLEXIBILITY X DOC. SERVICE X 1 2 3 4 5 6 7 8 9

9 Point Performance Scale For this product group is achieved performance ........ 1 - Consistently considerably better than our nearest competitor 2 - Consistently clearly better than our nearest competitor 3 - Consistently marginally better than our nearest competitor BETTER THAN COMPETITORS 4 - Often marginally better than most competitors 5 - About the same as most competitors 6 - Often close to main competitors SAME AS COMPETITORS 7 - Usually marginally worse than main competitors 8 - Usually worse than most competitors 9 - Consistently worse than most competitors WORSE THAN COMPETITORS

Temperature controlled - Overnight service Example Temperature controlled - Overnight service PERFORMANCE against Competitors 1 2 3 4 5 6 7 8 9 * COST X SERVQUAL (DISN.) X SERVQUAL (ORDER TAKE) X ENQUIRY LEAD-TIME X DROP QUOTE X WINDOW QUOTE X DELIVERY PERFORMANCE X DELIVERY FLEXIBILITY X VOLUME FLEXIBILITY X DOC. SERVICE X 1 2 3 4 5 6 7 8 9 Estimated *

Example X X X X X X X X X X PERFORMANCE COMPETITORS IMPORTANCE AGAINST COMPETITORS GOOD BAD Example 1 Delivery X better 2 Volume Flex than X Window Quote Drop Quote 3 X X 4 X Servqual (DISN) same 5 X as Doc Service 6 X Price/Cost X Delivery Flex 7 X Servqual (Order Take) 8 worse X Enquiry Lead-Time than 9 9 8 7 6 5 4 3 2 1 less order qualifying important winning IMPORTANCE FOR CUSTOMERS LOW HIGH

URGENT ACTION IMPROVE APPROPRIATE EXCESS ? better than same as worse less important qualifying order winning 1 2 3 4 5 6 7 8 9 IMPORTANCE FOR CUSTOMERS LOW HIGH PERFORMANCE AGAINST COMPETITORS GOOD BAD URGENT ACTION IMPROVE APPROPRIATE EXCESS ? CUSTOMERS

Budget Hotel Chain Example Today Tomorrow Delights Central reservation Order Winners Central reservation Location (autoroutes) Location (autoroutes) Location (restaurants) Price Loyalty cards Qualifiers Location (restaurants) Price Loyalty cards Cleanliness Cleanliness Decor Decor Service ?

Budget Hotel Chain Example Today Tomorrow Price Location (restaurants) Delights Central reservation Price Order Winners Central reservation Location (autoroutes) Location (autoroutes) Location (restaurants) Location (restaurants) Price Loyalty cards Qualifiers Location (restaurants) Price Loyalty cards Cleanliness Cleanliness Decor Decor Service ?

Budget Hotel Chain Example Delights Order Winners Qualifiers What aspects of service will form tomorrows delights, order winners and qualifiers? What new capabilities will operations need to develop to deliver these? Delights Price Cheap land costs Build at low cost Operate at low cost Search processes Flexible design Low fixed costs Standardisation Low overheads Low labour costs New technology Order Winners Central reservation) More, smaller sites Location (autoroutes) Partnership deals with restaurants Location (restaurants) Qualifiers Location (restaurants) Price Loyalty cards Cleanliness Decor TTT 16

What performance objectives are Qualifiers, Order Winners and Delights ? … and in the future ? ??? What is the operation doing today to develop the capabilities which will provide the “Delights” of the future ? Today Tomorrow Delights Order Winners Qualifiers

Where will you be in the Future? Delights Order Winners Qualifiers Today Tomorrow

Trade-offs “Do you want it good, or do you want it Tuesday?” “No such thing as a free lunch.” “You can’t 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.”

Driving Learning & Improvement whilst avoiding Strategic Vulnerability Be Clear about your current performance in terms of: Process Capability Alignment of resources to customers & markets Responsiveness of your resources to external variations Performance measurement and objectives Service level agreements, specifications and targets Consistency of purpose Appropriate relationships across your supply chain and operations network

How can we carry out such a ‘Health Check’? Benchmarking against others Validation against best practice Evaluation of Strategic Criteria Audit of the pressures and stresses faced by your organisation

What is Stress Point Analysis? A research tool developed to accommodate the individual context and conditions facing an organisation A methodology for highlighting key areas of strategic weakness A comparative analysis – benchmarking against others and against best practice A customised methodology for an individual audit

Strategic Performance - Responsiveness of Your Operation Response curve Stress Point Performance Failure Point KEY To ZONES Desired Capability ‘Force’ Operating Capability STRESS

The Causes of Supply Chain and Operations Stress Congruence Alignment to customer needs, potential degradation of delights Mismatched relationships with customers and suppliers Confusion over needs Capabilities Processes are not able to meet the performance targets Service levels are inappropriate Capability Not Measured No laid down process maps or procedures Capacity Poor utilisation, slow response to demand, too many set ups, high or increasing variety Low Value Adding content Low T/E (throughput efficiency) Control High Forecasting Errors ‘Bullwhip’ across the chain (Forrester Effect) Resource Scheduling and Inventory inaccuracies

To AUDIT your Business Logon to http://www.supply-chain.org.uk Click on the SPA Methodology link Login to the ht2 site using: Username SPA** Password SPA** (Same as your username) I will allocate your number Complete the survey Your results will be emailed to you in early April as a benchmark report