The strategic role of Operations and Operations Strategy By: Munyao Mulwa Dept of Management Science DOM 511 : Operations Management Practice

 Concerned with meeting existing market needs as well as exploiting opportunities for potential market segments  Making the best use of resources & leveraging these resources either alone or with partners  Devising and implementing processes that will enable the enterprise to compete & ideally create competitive advantage  Concerned with developing capabilities within the firm’s operations that are superior to other competitors and that other competitors either cannot copy or will find it extremely difficult to copy

 While a vision unifies an Organization, a mission states what the firm is about and strategy is says how the organization will achieve the mission  Provides Consistency in Decisions  Keeps an Organization moving in the right Direction

 Example ( Kai-Z household Pride Ltd) The mission (the ‘what’ element) : ‘ to crush, squash and slaughter selling of household utensils and appliances in supermarkets’  (The ‘How element ‘, ->> by locating low cost, variety led utensils & appliances outlets in all major cities & towns in Kenya within 18 months  Consider Operations Capabilities  Consider capabilities outside the firm

An Operations Strategy must include at least the following;  amounts of capacity required by the organization to achieve its aims;  the range and locations of facilities;  technology investment to support process and product developments;  formation of strategic buyer–supplier relationships as part of the organization’s ‘extended enterprise’;  the rate of new product or service introduction;  organizational structure – to reflect what the firm ‘does best’, often entailing outsourcing of other activities.

1. Define a Primary Task: what is the firm in the business of doing. Defines the competitive arena 2. Define a Vision: describes what the organization sees itself becoming 3. Assessing Core Competency: what the firm does better than anyone else (quality, speed, possible choice, lower cost, faster innovation…). Must remain sustainable 4. Determine 1. Order Qualifiers: characteristics that make a product /service to be considered for purchase 2. Order Winners: what wins the order on the marketplace (quality, price, availability…) 5. Positioning: how will the firm compete? Focus on one important thing (for the client) on which to concentrate & do extremely well

3 Customer NeedsCorporate Strategy Operations Strategy Alignment Core Competencies Decisions Processes, Infrastructure, and Capabilities

What is the role of the operations function? Operations as effector Operations as follower Operations as leader Ops Strategy Operations implements strategy Operations supports strategy Operations drives strategy Strategy Ops Strategy Ops

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

4  Cost  Quality  Delivery Flexibility  Delivery Speed  Delivery Reliability  Coping with Changes in Demand  Flexibility and New Product Introduction Speed  Other Product-Specific Criteria

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

Please the customer Please the customer Understand customer attitudes toward and expectations of quality Understand customer attitudes toward and expectations of quality

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

Fast moves Fast moves Fast adaptations Fast adaptations Tight linkages Tight linkages

5 Cost Quality DeliveryFlexibility FOCUS Plant within a Plant (PWP) Traditional Approach Advanced Approaches World Class Manufacturing Trade-offs

6 World-class manufacturers no longer view cost, quality, speed of delivery, and even flexibility as tradeoffs. They are order qualifiers & order winners. Order qualifiers - a screening criterion that permits a firm’s products to be considered as possible candidates of purchase e.g on time delivery Order winners – A criterion that differentiates the products or services of one firm from another e.g price, quality & reliability

7  Service can be an “order winner” Warranty Roadside Assistance Loan Vehicles Leases

8 Customer Needs New and Current Products Performance Priorities and Requirements Quality, Dependability, Speed, Flexibility, and Price Operations & Supplier Capabilities TechnologyPeopleSystemsR&DCIMJITTQMDistribution Support Platforms Financial Management Human Resource ManagementInformation Management Enterprise Capabilities Strategic Vision

9  Consider the case of a personal computer manufacturer. 1. How would we segment the market according to product group? 2. How would we identify product requirements, demand patterns, and profit margins for each group? 3. How do we identify order winner and order qualifiers for each group?

10 4. How do we convert order winners into specific performance requirements? Us (Core competencies) Competition (Them) Differentiation Strategy Begins with Priorities

1. Internally Neutral 2. Externally Neutral 3. Internally Supportive 4. Externally Supportive

11  Stage 1--Internally Neutral  Minimize manufacturing’s negative potential  Management control systems  Stage II--Externally Neutral  Achieve parity with competitors  Follow industry practice  Stage III--Internally Supportive  Support the business strategy  Stage IV-- Externally Supportive  Manufacturing-based competitive advantage

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

12  Stage I. Available for Service  Reactive, non-performance-based survival  Stage II. Journeyman  Firm neither sought nor avoided  Reliable but uninspired operation

13  Stage III. Distinctive Competence Achieved  Reputation for meeting customers’ expectations  Customer-focused operations--management support  Stage IV. World Class Service Delivery  Firm name synonymous with service excellence--focus on delighting rather than satisfying customers  Continuous learning and improvement of operations

Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services Operating Systems

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

 Make to Order  Designed, produced & delivered to customer specifications, after an order has been received (custom tailored clothes, charter flights etc)  Critical Success Factors:  meeting individual requirements  time to delivery  Make to Stock  Produced according to Standard specifications in expectation of orders to come in (books, TV, airline flights…)  Critical Success Factors:  forecasting future demand  manage properly stock levels  Assemble to Order  Options available according to client requirements (computers, executive training, industrial equipment…)  Critical Success Factors:  Minimizing inventory level  Delivering on time

 Job shop  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  Mass customization  Very high volume unique products  Continuous Production  High volume commodity products

 Batch production: the system processes different jobs at the same time in groups (= batches) (printers, bakeries, education, furniture making)  Mass production: produces large volumes of a standard product for mass market ( automobiles, computers, household goods)  Continuous production: used for very high volumes commodity products refined oil, water, chemicals, paper, foodstuff)  Project: one at a time production of a product to customer order ( a ship, a building, a plant)

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

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

 Affects ability to compete by determining  Lead times  Customer responsiveness  Operating costs  Ability to grow  Global capacity to be spread into individual capacities of sub- processes  One large or several small plants?  Preferred geographic regions, customers, products to serve.  Make, buy sell in foreign countries & associated contracts & commercial agreements

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

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

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

 Vertical Integration along the value chain  Selling, assembling, producing, extracting raw material by one company not always possible neither whished  focus on core business  Positioning  costs  Make or buy components (outsourcing)?  Bargaining power of suppliers & clients (Porter)  Level of independence  Protection of intellectual rights  Competency building  Outsourcing  selection of partner: criteria, number, location, profile  Incentives & protection from competitors?…  Contracts: cost, duration, + specifications & quality control + liabilities

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

 Day to day management of the production lines  To be designed to support competitiveness of the firm on the market place  Must support client & workers demand for  Easy & fast access to information + storage & retrieval  Planning & Control Systems + feedback  Inventory levels  Scheduling priorities  Reward systems in line with strategic goals

Corporate Strategy Mission Vision Marketing Strategy Financial Strategy Operations Strategy Business Environment Voice of the Customer

 From Formulating => Making it happen  A need for breakdown/ translation at department level  A need to go from (long term) Strategic Goals to daily Tactics & Actions  A Strategic Planning Hierarchy is required

 Download two articles from the e-learning portal & read them;  Too busy to develop an operations strategy  Operations strategy: genealogy, classification and anatomy