OPSM 501: Operations Management Session 3&4: Strategic Fit Process selection Koç University Graduate School of Business MBA Program Zeynep Aksin

Shouldice Hospital Video Case wrap-up

On what product attributes does Vestel Elektronik compete?

Firms compete on product attributes. This requires process capabilities.  Price (Cost) P  Quality Q –Customer service –Product quality  Time T –Rapid, reliable delivery –New product development  Variety V –Degree of customization “order winners” To deliver we need “capabilities”

Strategic Operational Audit Desired Business Strategy Operations Strategy Desired Capabilities Marketing, …, Financial Strategy Desired Oper’l Structure: Processes & Infrastructure Product Attributes P, T, Q, V Process Attributes C, T, Q, Flex Existing Capabilities Operational Structure: Processes & Infrastructure ExistingDesired Feasible Business Strategies Strategy Gap? Measures Capability Gap? Process Gap?

What are process attributes at Vestel? How are these achieved?

Classification of Processes: by Customer Interface SUPPLIER CLIENT Make-to-Stock Assemble-to-Order Make-to-Order Engineer-to-Order Raw MaterialComponentsSemifinishedFinished Forecast Order

Competing on variety requires flexibility  Europe’s number 1, world’s number 2. OEM TV producer! 6% of World TV production.  Daily capacity: TVs (average production /day)  20 parallel assembly lines  Flexibility to produce 40 different brands-models in a day  60% of orders for quantities less than 200  Direct deliveries to some chain stores in Europe

Where is Vestel Elektronik on the product- process matrix?

Industrialization 1: Standardizing Process Product Flexible Job Shop Batch Flow Rigid Line Flow High Customization Some Customization High Stardardization

Industrialization 2: Flexibility Vestel Process Product Flexible Job Shop Batch Flow Rigid Line Flow High Customization Some Customization High Stardardization

Strategic Value Gained Out of price! Vestel Out of Fashion! Process Product Flexible Job Shop Batch Flow Rigid Line Flow High Customization Some Customization High Stardardization

Threats going forward? Strategy going forward?

The product-process matrix

Classification of Processes by process architecture  Project  Job Shop  Batch  Line Flow  Continuous Flow Job Shop Flow Shop

The Job Shop Process  Process Layout  One of a Kind Build –(To Customer Order)  Absence of Rigid Flow Pattern  Usually High Product Mix

Process Layout Lathe#1 Lathe#2 Lathe#3 Lathe#4 Product #1735B: Start of Production Drill Press #1 Drill Press #2 Paint Machine Packaging Machine #1 Packaging Machine #2 Finish Production

The Flow Line Process  Product Layout  Discrete Parts  Rigid Flow Pattern  Product Mix of Standard Products

Product Layout Product #1735B Lathe Start Production Drill Press #2 Paint Machine Drill Press #1 Packaging Machine #2 Finish Production

What is innovative about Zara?

Zara Business Concept Low Cost  Focus on getting it approximately correct  Define a fast process  Solve the material constraint  Constrain designers  Optimize the offer  Offer follow-up (next batch) and create customer flows Fashion  Store experience  Copy fashion  Involve the customers and his group  Create a network/brand Integrated fashion delivery: Fashion at low cost

Zara Customer Offer: Product/Process Attributes  Quality: –Raw Material: poor/OK –Knit: poor –Look: grand –Customer satisfaction: fashion at low price  Cost: –Low monetary cost –Low time cost “The Zara experience”  Time: –Fast copying of leading styles –Fast delivery in own stores –Limited editions  Variety/Flexibility: –Limited product variety: only what is on display –Every customer is participating in the process –Customer defines the next batch

Classical textile business process: 12 month lead time Design Purchase RM MfgDistSellDiscount

Zara Business Process: 5 day lead time 1.Scan fashion shows 2.Simplify hits & Library of designs Purchase RM 2.Shoppers and store mgrs. PULL next design Designers adapt Shopping Experience 3.Final design of Next batch. MfgDist

The design process Creative design Preliminary designs Final product design Final product design Preliminary designs Creative design Outsource And scan Copy and simplify Adapt and optimize Traditional Zara

Why is profitability in textile so low, when margins are so high? Expected demandActual demand Perfect forecast Excess demand Excess stock

Accurate Response  Improving Forecasts Initial Forecast Total Sales

Accurate Response  Improving Forecasts Updated Forecast, Incorporating 20% of Sales Data Total Sales

Accurate Response  Improving Forecasts Updated Forecast, Incorporating 80% of Sales Data Total Sales

Zara’a Approach to Demand uncertainty Expected demandActual demand Small batches Excess stock and unmet demand are avoided by stopping production when market saturates

Disruptive Technological Change Time Performance Zara Quality Freshness M&S Zara

Zara as a lean enterprise ZaraM&S Clear focus on one customer type and one process No focus, multiple and simultaneous goals Unique and clear value prop.Confusion of implicit value proposition Predictable processUnpredictable and fuzzy process Strive for perfectionSatisfied with threshold performance Eliminate wasteTolerate some excess Manage customer flowsView customers as a sequence of tasks Pull customers into processPushes customers through the system

Industrialization 1: Standardizing High Fashion Marks &Spencer Mass Merchants Process Product Flexible Job Shop Batch Flow Rigid Line Flow High Customization Some Customization High Stardardization

Industrialization 2: Flexibility High Fashion ZaraMarks &Spencer Mass Merchants Process Product Flexible Job Shop Batch Flow Rigid Line Flow High Customization Some Customization High Stardardization

Strategic Value Gained High Fashion Out of price! Zara Marks &Spencer Out of Fashion! Mass Merchants Process Product Flexible Job Shop Batch Flow Rigid Line Flow High Customization Some Customization High Stardardization

Key learnings from Operations Strategy module  Business model: customer segment and selected processes to match those segments’ needs  Product-process attributes: P, Q, T, V (C, Q, T, Flex) (what?)  Operating effectiveness (how well?)  Product-process matrix  Lean enterprise: focus, which allows clear value proposition, perfection (optimization), elimination of waste, and focus on customer flows  Process competition: Shouldice, Vestel Elektronik, M&S, Zara

Announcements  We will play the house building game, see instruction slides that follow  Start reading The Goal  Course TA: Beliz Keçelerli; Office Hours T-Th 11-12:30 or by appointment CAS Z52

KEEP DESKS CLEAR!  Only need a pen or pencil.  Please keep desks and aisles clear of notebooks, PCs, backpacks etc.  Please do not disturb materials!

HouseBuilding.com: Manufacturing Operations Production Control (color sheets, log sheets, scissors) (scissors) Base Punch (scissors) Final Assembly (tape) Base Weld (stapler) Quality Control Customer Roof Base Form

Production Control Operating Procedures  Prepare a batch of 4 units. –Cut each sheet (one at a time) into two: roof and base. –Write the batch number on the roof and the base. All items in the same batch have the same number. The numbers have to match in assembly. –Repeat –4 times, which yields one batch  When 4 units (one batch) are complete, “release” the batch. –Put the batch in your out-basket: it’s ready for pickup by the trucker. –Record release time for each batch.  Release one batch each minute.

Truckers Operating Procedures  Truckers are responsible for transporting work in process inventory between production steps.  You can carry only one batch of 4 roofs or 4 bases at a time. Not both! Production Control (color sheets, log sheets, scissors) (scissors) Base Punch (scissors) Final Assembly (tape) Base Weld (stapler) Quality Control Customer Roof Base Form (scissors)

Roof Operating Procedures  Cut the roof along double lines, one at a time.  Fold roof along dotted line at top. Think quality!  Work in batches of 4 units.  When a batch is ready, call the trucker and send to Final Assembly.  Ask trucker for inputs when needed.

Base Punch (Cut) Operating Procedures  Cut the base along double lines, one at a time. Think quality!  Work in batches of 4 units  When a batch is ready, call the trucker and send to Base Form.  Ask trucker for inputs when needed.

Base Form Operating Procedures  Fold the lines on the base (4 folds).  Work in batches of 4 units  When a batch is ready, call the trucker to send them to Base Weld.  Ask trucker for inputs when needed

Base Weld Operating Procedures  Staple base on top and bottom about 0.5 cm from the edge.  Work in batches of 4 units.  When a batch is ready, call the trucker to send them to Final Assembly.  Ask trucker for inputs when needed.

Final Assembly Operating Procedures  Tape the roof to the base (2 tapes).  Work in batches of 4 units.  When a batch is ready, send them to QA. (No trucker required.)  Ask trucker for inputs when needed.

Quality Assurance Operating Procedures  Check each batch if they conform to quality standards!  If the house conforms to quality standards, put it on the market. Once on the market no more rework!  Customers can reject houses Quality Standards  Batch numbers must match.  Folds and cuts should be along appropriate lines. –Folds should be crisp and cuts should be straight.  Roof should be centered and door should be visible. –Top of base should be flush with roof.  Staples and tape should be centered and parallel to the ground. –Not too much tape. About 1 cm –Staples about 0.5 cm from edge.

House Game Overview  Quality Standards  Batch numbers must match.  Folds and cuts should be along appropriate lines. –Folds should be crisp and cuts should be straight.  Roof should be centered and door should be visible. –Top of base should be flush with roof.  Staples and tape should be centered and parallel to the ground. –Not too much tape. About 1 cm. –Staples about 0.5 cm from edge. Production Control (color sheets, log sheets, scissors) (scissors) Base Cut (scissors) Final Assembly (tape) Base Weld (stapler) Quality Control Customer Roof Base Form (scissors)

HouseBuilding.com: Operational Performance Flow time T House # 1 T o - T i = T Quality Q = R/ R o Inventory I Output R o Input R i House # 16 T o - T i = T Sales R Team (color)